TECHNICAL COMMUNICATIONS CORP
LOAN AND SECURITY AGREEMENT DATED 7/31/2000
<DOCUMENT>
<TYPE>EX-10.3
<SEQUENCE>2
<FILENAME>0002.txt
<DESCRIPTION>LOAN AND SECURITY AGREEMENT DATED 7/31/2000
<TEXT>

<PAGE>

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                          LOAN AND SECURITY AGREEMENT


                                by and between



                     Technical Communications Corporation



                                      and



                            COAST BUSINESS CREDIT,
                      a division of Southern Pacific Bank



                           Dated as of July 31, 2000


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<PAGE>

                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                           Page
                                                                                           ----
<S>  <C>                                                                                   <C>
1.   DEFINITIONS..........................................................................    1

2.   CREDIT FACILITIES....................................................................    6
     2.1    Loans.........................................................................    6
     2.2    Letters of Credit.............................................................    7

3.   INTEREST AND FEES....................................................................    7
     3.1    Interest......................................................................    7
     3.2    Fees..........................................................................    7

4.   SECURITY INTEREST....................................................................    7

5.   CONDITIONS PRECEDENT.................................................................    8
     5.1    Status of Accounts at Closing.................................................    8
     5.2    Minimum Availability..........................................................    8
     5.3    Landlord Waiver...............................................................    8
     5.4    Intentionally Deleted.........................................................    8
     5.5    Executed Agreement............................................................    8
     5.6    Opinion of Borrower's Counsel.................................................    8
     5.7    Priority of Coast's Liens.....................................................    8
     5.8    Insurance.....................................................................    8
     5.9    Borrower's Existence..........................................................    8
     5.10   Organizational Documents......................................................    8
     5.11   Taxes.........................................................................    8
     5.12   Due Diligence.................................................................    8
     5.13   Other Documents and Agreements................................................    9

6.   REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE BORROWER............................    9
     6.1    Existence and Authority.......................................................    9
     6.2    Name; Trade Names and Styles..................................................    9
     6.3    Place of Business; Location of Collateral.....................................    9
     6.4    Title to Collateral; Permitted Liens..........................................    9
     6.5    Maintenance of Collateral.....................................................   10
     6.6    Books and Records.............................................................   10
     6.7    Financial Condition, Statements and Reports...................................   10
     6.8    Tax Returns and Payments; Pension Contributions...............................   10
     6.9    Compliance with Law...........................................................   10
     6.10   Litigation....................................................................   10
     6.11   Use of Proceeds...............................................................   10

7.   RECEIVABLES..........................................................................   10
     7.1    Representations Relating to Receivables.......................................   10
     7.2    Representations Relating to Documents and Legal Compliance....................   11
     7.3    Schedules and Documents relating to Receivables...............................   11
     7.4    Collection of Receivables.....................................................   11
     7.5    Remittance of Proceeds........................................................   11
     7.6    Disputes......................................................................   11
     7.7    Returns.......................................................................   12
     7.8    Verification..................................................................   12
     7.9    No Liability..................................................................   12

8.   ADDITIONAL DUTIES OF THE BORROWER....................................................   12
     8.1    Financial and Other Covenants.................................................   12
     8.2    Insurance.....................................................................   12
     8.3    Reports.......................................................................   12
     8.4    Access to Collateral, Books and Records.......................................   12
     8.5    Negative Covenants............................................................   13
     8.6    Litigation Cooperation........................................................   14
     8.7    Further Assurances............................................................   14

9.   TERM.................................................................................   14
     9.1    Maturity Date.................................................................   14
     9.2    Early Termination.............................................................   14
     9.3    Payment of Obligations........................................................   14

10.  EVENTS OF DEFAULT AND REMEDIES.......................................................   15
     10.1   Events of Default.............................................................   15
     10.2   Remedies......................................................................   16
     10.3   Standards for Determining Commercial Reasonableness...........................   17
     10.4   Power of Attorney.............................................................   18
     10.5   Application of Proceeds.......................................................   19
     10.6   Remedies Cumulative...........................................................   19

11.  GENERAL PROVISIONS...................................................................   19
     11.1   Interest Computation..........................................................   19
     11.2   Application of Payments.......................................................   20
     11.3   Charges to Accounts...........................................................   20
     11.4   Monthly Accountings...........................................................   20
     11.5   Notices.......................................................................   20
     11.6   Severability..................................................................   20
     11.7   Integration...................................................................   20
     11.8   Waivers.......................................................................   20
     11.9   No Liability for Ordinary Negligence..........................................   21
     11.10  Amendment.....................................................................   21
     11.11  Time of Essence...............................................................   21
     11.12  Attorneys' Fees, Costs and Charges............................................   21
     11.13  Benefit of Agreement..........................................................   21
     11.14  Publicity.....................................................................   21
     11.15  Paragraph Headings; Construction..............................................   22
     11.16  Governing Law; Jurisdiction; Venue............................................   22
     11.17  Mutual Waiver of Jury Trial...................................................   22
</TABLE>

                                      -i-
<PAGE>

                                                                    Exhibit 10.3

Coast

Loan and Security Agreement

Borrower: Technical Communications Corporation

Address:  100 Domino Drive
          Concord, Massachusetts 01742

Date:     July 31, 2000


THIS LOAN AND SECURITY AGREEMENT is entered into on the above date between COAST
BUSINESS CREDIT, a division of Southern Pacific Bank ("Coast"), a California
corporation, with offices at 12121 Wilshire Boulevard, Suite 1400, Los Angeles,
California 90025, and the borrower named above (the "Borrower"), whose chief
executive office is located at the above address ("Borrower's Address").  The
Schedule to this Agreement (the "Schedule") shall for all purposes be deemed to
be a part of this Agreement, and the same is an integral part of this Agreement.
(Definitions of certain terms used in this Agreement are set forth in Section 1
below).


1.   DEFINITIONS.  As used in this Agreement, the following terms have the
following meanings:

     "Account Debtor" means the obligor on a Receivable or General Intangible.
      --------------

     "Affiliate" means, with respect to any Person, a relative, partner,
      ---------
shareholder, director, officer, or employee of such Person, or any parent or
subsidiary of such Person, or any Person controlling, controlled by or under
common control with such Person.

     "Audit" means to inspect, audit and copy Borrower's books and records and
      -----
the Collateral.

     "Borrower" has the meaning set forth in the introduction to this Agreement.
      --------

     "Borrower's Address" has the meaning set forth in the introduction to this
      ------------------
Agreement.

     "Business Day" means a day on which Coast is open for business.
      ------------

     "Change of Control" shall be deemed to have occurred at such time as (i) a
      -----------------
change in two or more of the current three executive officers of Borrower, being
the Chief Executive Officer, the Chief Financial Officer and the Executive Vice-
president in charge of operations, or (ii) a change in 50% or more of the
current board members of Borrower or (iii) if Technical Communications
Corporation ceases to own 100% of the issued shares of TCC Investment
Corporation and TCC Foreign Sales Corporation.

     "Closing Date" means date of the initial funding under this Agreement.
      ------------

     "Coast" has the meaning set forth in the introduction to this Agreement.
      -----

     "Code" means the Uniform Commercial Code as adopted and in effect in the
      ----
State of California  from time to time.

     "Collateral" has the meaning set forth in Section 4 hereof.
      ----------

     "Credit Limit" means the maximum amount of Loans that Coast may make to
      ------------
Borrower pursuant to the amounts and percentages shown on the Schedule to this
Agreement.

     "Default" means any event which with notice or passage of time or both,
      -------
would constitute an Event of Default.

     "Deposit Account" has the meaning set forth in Section 9105 of the Code or
      ---------------
any successor section.
<PAGE>


Coast Business Credit                               Loan and Security Agreement
===============================================================================


     "Dollars or $" means United States dollars.
      -------    -

     "Early Termination Fee" means the amount set forth on the Schedule that
      ---------------------
Borrower must pay Coast if this Agreement is terminated by Borrower or Coast
pursuant to Section 9.2 hereof.

     "Eligible Foreign Receivables" means Receivables arising from Borrower's
      ----------------------------
customers located outside the United States which Coast otherwise approves for
borrowing in its sole discretion, reasonably exercised.  Without limiting the
foregoing, Coast will consider the following in determining the eligibility of
such receivables: (i) whether the Borrower's goods are shipped backed by an
irrevocable letter of credit satisfactory to Coast (as to form, substance, and
issuer or domestic confirming bank) that has been delivered to Coast and is
directly drawable by Coast, or (ii) whether the Borrower's customer is a large
or rated company having a verifiable credit history, or (iii) whether Borrower's
customer is a foreign subsidiary of a customer of Borrower that is a company
that was formed and has its primary place of business within the United States,
or (iv) whether Borrower's customer is a large foreign corporation, or (v)
whether Borrower's customer is a foreign company with a Dun & Bradstreet rating,
or (vi) whether Borrower's goods are shipped to a company that has credit
insurance acceptable to Coast in its discretion.

     "Eligible Inventory" means Inventory which Coast, in its sole judgment,
      ------------------
reasonably exercised, deems eligible for borrowing, based on such considerations
as Coast may from time to time deem appropriate.  Without limiting the fact that
the determination of which Inventory is eligible for borrowing is a matter of
Coast's discretion, Inventory which does not meet the following requirements
will not be deemed to be Eligible Inventory:  Inventory which (i) consists of
raw material or finished goods, in good, new and salable condition which is not
perishable, not obsolete or unmerchantable, and is not comprised of work in
process, packaging materials or supplies; (ii) meets all applicable governmental
standards; (iii) has been manufactured in compliance with the Fair Labor
Standards Act; (iv) conforms in all respects to the warranties and
representations set forth in this Agreement; (v) is at all times subject to
Coast's duly perfected, first priority security interest; and (vi) is situated
at a one of the locations set forth on the Schedule.

     "Eligible Receivables" means Receivables and Eligible Foreign Receivables
      --------------------
arising in the ordinary course of Borrower's business from the sale of goods or
rendition of services, which Coast, in its sole judgment, shall deem eligible
for borrowing, based on such considerations as Coast may from time to time deem
appropriate.  Eligible Receivables shall not include the following:

          (a)  Receivables that the Account Debtor has failed to pay within 90
days (120 days for otherwise eligible government receivables and Eligible
Foreign Receivables) of invoice date or Accounts with selling terms of more than
30 days;

          (b)  Receivables owed by an Account Debtor or its Affiliates where
twenty five percent (25%) or more of all Receivables owed by that Account Debtor
(or its Affiliates) are deemed ineligible under clause (a) above;

          (c)  Receivables with respect to which the Account Debtor is an
employee, Affiliate, or agent of Borrower;

          (d)  Receivables with respect to which goods are placed on
consignment, guaranteed sale, sale or return, sale on approval, bill and hold,
or other terms by reason of which the payment by the Account Debtor may be
conditional;

          (e)  Receivables, other than Eligible Foreign Receivables, that are
not payable in Dollars or with respect to which the Account Debtor: (i) does not
maintain its chief executive office in the United States, or (ii) is not
organized under the laws of the United States or any State thereof, or (iii) is
the government of any foreign country or sovereign state, or of any state,
province, municipality, or other political subdivision thereof, or of any
department, agency, public corporation, or other instrumentality thereof, unless
(y) the Receivable is supported by an irrevocable letter of credit satisfactory
to Coast (as to form, substance, and issuer or domestic confirming bank) that
has been delivered to Coast and is directly drawable by Coast, or (z) the
Receivable is covered by credit insurance in form and amount, and by an insurer,
satisfactory to Coast;

          (f)  Receivables with respect to which the Account Debtor is either
(i) the United States or any department, agency, or instrumentality

                                       2
<PAGE>

Coast Business Credit                               Loan and Security Agreement
===============================================================================

of the United States (exclusive, however, of Accounts with respect to which
Borrower has complied, to the satisfaction of Coast, with the Assignment of
Claims Act, 31 U.S.C. "3727), or (ii) any State of the United States
(exclusive, however, of Receivables owed by any State that does not have a
statutory counterpart to the Assignment of Claims Act);

          (g) Receivables with respect to which the Account Debtor is a creditor
of Borrower, has or has asserted a right of setoff, has disputed its liability,
or has made any claim with respect to the Receivables;

          (h) Receivables with respect to an Account Debtor whose total
obligations owing to Borrower exceed twenty five percent (25%) of all Eligible
Receivables, to the extent of the obligations owing by such Account Debtor in
excess of such percentage, provided that for a maximum period of 90 days, the
"25%" limitation is increased to "50%".  The increase to 50% may be reinstituted
by Coast on an account by account basis at Coast's discretion, and upon approval
of Coast's senior loan committee, such approval to be within Coast's business
judgment, reasonably exercised;

          (i) Receivables with respect to which the Account Debtor is subject to
any reorganization, bankruptcy, insolvency, arrangement, readjustment of debt,
dissolution or liquidation proceeding, or becomes insolvent, or goes out of
business;

          (j) Receivables the collection of which Coast, in its reasonable
credit judgment, believes to be doubtful by reason of the Account Debtor's
financial condition;

          (k) Receivables with respect to which the goods giving rise to such
Receivable have not been shipped and billed to the Account Debtor, the services
giving rise to such Receivable have not been performed and accepted by the
Account Debtor, or the Receivable otherwise does not represent a final sale;

          (l) Receivables with respect to which the Account Debtor is located in
the states of New Jersey, Minnesota, Indiana, or West Virginia (or any other
state that requires a creditor to file a Business Activity Report or similar
document in order to bring suit or otherwise enforce its remedies against such
Account Debtor in the courts or through any judicial process of such state),
unless Borrower has, to the extent required, qualified to do business in New
Jersey, Minnesota, Indiana, West Virginia, or such other states, or has filed a
Notice of Business Activities Report with the applicable division of taxation,
the department of revenue, or with such other state offices, as appropriate, for
the then-current year, or is exempt from such filing requirement; and

          (m) Receivables that represent progress payments or other advance
billings that are due prior to the completion of performance by Borrower of the
subject contract for goods or services, unless Coast has received either a no
offset letter acceptable to Coast in its discretion or Borrower provides
documentation satisfactory to Coast in its discretion assuring that the billing
is a final billing.

     "Equipment" means all of Borrower's present and hereafter acquired
      ---------
machinery, molds, machine tools, motors, furniture, equipment, furnishings,
fixtures, trade fixtures, motor vehicles, tools, parts, dies, jigs, goods and
other goods (other than Inventory) of every kind and description used in
Borrower's operations or owned by Borrower and any interest in any of the
foregoing, and all attachments, accessories, accessions, replacements,
substitutions, additions or improvements to any of the foregoing, wherever
located.

     "Event of Default" means any of the events set forth in Section 10.1 of
      ----------------
this Agreement.

     "GAAP" means generally accepted accounting principles as in effect from
      ----
time to time in the United States, consistently applied.

     "General Intangibles" means all general intangibles of Borrower, whether
      -------------------
now owned or hereafter created or acquired by Borrower, including, without
limitation, all choses in action, causes of action, corporate or other business
records, Deposit Accounts, investment property, inventions, designs, drawings,
blueprints, patents, patent applications, trademarks and the goodwill of the
business symbolized thereby, names, trade names, trade secrets, goodwill,
copyrights, registrations, licenses, franchises, customer lists, security  and
other deposits, rights in all litigation presently or hereafter pending for any
cause or claim (whether in contract, tort or otherwise), and all judgments now
or hereafter

                                       3
<PAGE>

Coast Business Credit                               Loan and Security Agreement
===============================================================================

arising therefrom, all claims of Borrower against Coast, rights to purchase or
sell real or personal property, rights as a licensor or licensee of any kind,
royalties, telephone numbers, proprietary information, purchase orders, and all
insurance policies and claims (including without limitation life insurance, key
man insurance, credit insurance, liability insurance, property insurance and
other insurance), tax refunds and claims, computer programs, discs, tapes and
tape files, claims under guaranties, security interests or other security held
by or granted to Borrower, all rights to indemnification and all other
intangible property of every kind and nature (other than Receivables).

     "Inventory" means all of Borrower's now owned and hereafter acquired goods,
      ---------
merchandise or other personal property, wherever located, to be furnished under
any contract of service or held for sale or lease (including without limitation
all raw materials, work in process, finished goods and goods in transit, and
including without limitation all farm products), and all materials and supplies
of every kind, nature and description which are or might be used or consumed in
Borrower's business or used in connection with the manufacture, packing,
shipping, advertising, selling or finishing of such goods, merchandise or other
personal property, and all warehouse receipts, documents of title and other
documents representing any of the foregoing.

     "Inventory Loans" means the Loans described in Section 2(b) of the
      ---------------
Schedule.

     "Investment Property" has the meaning set forth in Section 9115 of the Code
      -------------------
as in effect as of the date hereof or any successor section thereto.

     "Letter of Credit" has the meaning set forth in Section 2.2 hereof.
      ----------------

     "Letter of Credit Sublimit" has the meaning set forth in Section 2.2
      -------------------------
hereof.

     "Loan Documents" means this Agreement, the agreements and documents listed
      --------------
on Section 5 of the Schedule, and any other agreement, instrument or document
executed in connection herewith or therewith.

     "Loans" has the meaning set forth in Section 2.1 hereof.
      -----

     "Material Adverse Effect" means a material adverse effect on (i) the
      -----------------------
business, assets, condition (financial or otherwise) or results of operations of
Borrower or any subsidiary of Borrower or any guarantor of any of the
Obligations, (ii) the ability of Borrower or any guarantor of any of the
Obligations to perform its obligations under this Agreement (including, without
limitation, repayment of the Obligations as they come due) or (iii) the validity
or enforceability of this Agreement or any other agreement or document entered
into by any party in connection herewith, or the rights or remedies of Coast
hereunder or thereunder.

     "Maturity Date" means the date that this Agreement shall cease to be
      -------------
effective, as set forth on the Schedule, subject to the provisions of Section
9.1 and 9.2 hereof.

     "Maximum Dollar Amount" has the meaning set forth in Section 2 of the
      ---------------------
Schedule.

     "Minimum Monthly Interest" has the meaning set forth in Section 3 of the
      ------------------------
Schedule.

     "Obligations" means all present and future Loans, advances, debts,
      -----------
liabilities, obligations, guaranties, covenants, duties and indebtedness at any
time owing by Borrower to Coast, whether evidenced by this Agreement or any note
or other instrument or document, whether arising from an extension of credit,
opening of a letter of credit, banker's acceptance, loan, guaranty,
indemnification or otherwise, whether direct or indirect (including, without
limitation, those acquired by assignment and any participation by Coast in
Borrower's debts owing to others), absolute or contingent, due or to become due,
including, without limitation, all interest, charges, expenses, fees, attorneys'
fees (including attorneys' fees and expenses incurred in bankruptcy), expert
witness fees, audit fees, letter of credit fees, collateral monitoring fees,
closing fees, facility fees, termination fees, minimum interest charges and any
other sums chargeable to Borrower under this Agreement or under any other
present or future instrument or agreement between Borrower and Coast.

     "Permitted Liens" means the following:
      ---------------

          (a) purchase money security interests in specific items of Equipment;

                                       4
<PAGE>

Coast Business Credit                               Loan and Security Agreement
===============================================================================

          (b) leases of specific items of Equipment;

          (c) liens for taxes not yet payable;

          (d) additional security interests and liens consented to in writing by
Coast, which consent shall not be unreasonably withheld;

          (e) security interests being terminated substantially concurrently
with this Agreement;

          (f) liens of materialmen, mechanics, warehousemen, carriers, or other
similar liens arising in the ordinary course of business and securing
obligations which are not delinquent;

          (g) liens incurred in connection with the extension, renewal or
refinancing of the indebtedness secured by liens of the type described above in
clauses (a) or (b) above, provided that any extension, renewal or replacement
lien is limited to the property encumbered by the existing lien and the
principal amount of the indebtedness being extended, renewed or refinanced does
not increase; or

          (h) liens in favor of customs and revenue authorities which secure
payment of customs duties in connection with the importation of goods.

Coast will have the right to require, as a condition to its consent under
subparagraph (d) above, that the holder of the additional security interest or
lien sign an intercreditor agreement on Coast's then standard form, acknowledge
that the security interest is subordinate to the security interest in favor of
Coast, and agree not to take any action to enforce its subordinate security
interest so long as any Obligations remain outstanding, and that Borrower agree
that any uncured default in any obligation secured by the subordinate security
interest shall also constitute an Event of Default under this Agreement.

     "Person" means any individual, sole proprietorship, general partnership,
      ------
limited partnership, limited liability partnership, limited liability company,
joint venture, trust, unincorporated organization, association, corporation,
government, or any agency or political division thereof, or any other entity.

     "Prime Rate" means the actual "Reference Rate" or the substitute therefor
      ----------
of the Bank of America NT & SA whether or not that rate is the lowest interest
rate charged by said bank.  If the Prime Rate, as defined, is unavailable,
"Prime Rate" shall mean the highest of the prime rates published in the Wall
Street Journal on the first business day of the applicable month, as the base
rate on corporate loans at large U.S. money center commercial banks.

     "Receivable Loans" means the Loans described in Section 2(a) of the
      ----------------
Schedule.

     "Receivables" means all of Borrower's now owned and hereafter acquired
      -----------
accounts (whether or not earned by performance), letters of credit, contract
rights, chattel paper, instruments, securities, documents, securities accounts,
security entitlements, commodity contracts, commodity accounts, investment
property and all other forms of obligations at any time owing to Borrower, all
guaranties and other security therefor, all merchandise returned to or
repossessed by Borrower, and all rights of stoppage in transit and all other
rights or remedies of an unpaid vendor, lienor or secured party.

     "Renewal Date" shall mean the Maturity Date if this Agreement is renewed
      ------------
pursuant to Section 9.1 hereof, and each anniversary thereafter that this
Agreement is renewed pursuant to Section 9.1 hereof.

     "Renewal Fee" means the fee that Borrower must pay Coast upon renewal of
      -----------
this Agreement pursuant to Section 9.1 hereof, in the amount set forth on the
Schedule.

     "Solvent" means, with respect to any Person on a particular date, that on
      -------
such date (a) at fair valuations, all of the properties and assets of such
Person are greater than the sum of the debts, including contingent liabilities,
of such Person, (b) the present fair salable value of the properties and assets
of such Person is not less than the amount that will be required to pay the
probable liability of such Person on its debts as they become absolute and
matured, (c) such Person is able to realize upon its properties and assets and
pay its debts and other liabilities, contingent obligations and other
commitments as they mature in the normal course of business, (d) such Person
does not intend to, and does

                                       5
<PAGE>

Coast Business Credit                               Loan and Security Agreement
===============================================================================

not believe that it will, incur debts beyond such Person's ability to pay as
such debts mature, and (e) such Person is not engaged in business or a
transaction, and is not about to engage in business or a transaction, for which
such Person's properties and assets would constitute unreasonably small capital
after giving due consideration to the prevailing practices in the industry in
which such Person is engaged. In computing the amount of contingent liabilities
at any time, it is intended that such liabilities will be computed at the amount
that, in light of all the facts and circumstances existing at such time,
represents the amount that reasonably can be expected to become an actual or
matured liability.

     "Tangible Net Worth" means consolidated Shareholder's equity plus
      ------------------
subordinated debt otherwise permitted hereunder, less, goodwill, patents,
                                                 ----
trademarks, copyrights, franchises, formulas, leasehold interests, leasehold
improvements, non-compete agreements, engineering plans, deferred tax benefits,
organization costs,  prepaid items and any other  assets of Borrower that would
be treated as intangible assets on Borrower's balance sheet prepared in
accordance with GAAP.

     "Term Loan" means the Loans described in Section 2(c) of the Schedule.
      ---------

     "Other Terms"  All accounting terms used in this Agreement, unless
      -----------
otherwise indicated, shall have the meanings given to such terms in accordance
with GAAP.  All other terms contained in this Agreement, unless otherwise
indicated, shall have the meanings provided by the Code, to the extent such
terms are defined therein.

2.   CREDIT FACILITIES.

     2.1  Loans.  Coast will make loans to Borrower (the "Loans"), in amounts
and in percentages to be determined by Coast in its good faith discretion, up to
the Credit Limit, provided no Default or Event of Default has occurred and is
continuing. In addition, Coast may create reserves against or reduce its advance
rates based upon Eligible Receivables or Eligible Inventory without declaring a
Default or an Event of Default if it determines that there has occurred a
Material Adverse Effect.

     2.2  Letters of Credit.  At the request of Borrower, Coast may, in its sole
discretion, arrange for the issuance of letters of credit for the account of
Borrower (collectively, "Letters of Credit"), by issuing guarantees to the
issuer of the letter of credit or by other means. All Letters of Credit shall be
in form and substance satisfactory to Coast in its sole discretion. The
aggregate face amount of all outstanding Letters of Credit from time to time
shall not exceed the amount shown on the Schedule (the "Letter of Credit
Sublimit"), and shall be reserved against Loans which would otherwise be
available hereunder. Borrower shall pay all bank charges for the issuance of
Letters of Credit. Any payment by Coast under or in connection with a Letter of
Credit shall constitute a Loan hereunder on the date such payment is made. Each
Letter of Credit shall have an expiry date no later than thirty (30) days prior
to the Maturity Date. Borrower hereby agrees to indemnify, save, and hold Coast
harmless from any loss, cost, expense, or liability, including payments made by
Coast, expenses, and reasonable attorneys' fees incurred by Coast arising out of
or in connection with any Letters of Credit. Borrower agrees to be bound by the
regulations and interpretations of the issuer of any Letters of Credit
guarantied by Coast and opened for Borrower's account or by Coast's
interpretations of any Letter of Credit issued by Coast for Borrower's account,
and Borrower understands and agrees that Coast shall not be liable for any
error, negligence, or mistake, whether of omission or commission, in following
Borrower's instructions or those contained in the Letters of Credit or any
modifications, amendments, or supplements thereto. Borrower understands that
Letters of Credit may require Coast to indemnify the issuing bank for certain
costs or liabilities arising out of claims by Borrower against such issuing
bank. Borrower hereby agrees to indemnify and hold Coast harmless with respect
to any loss, cost, expense, or liability incurred by Coast under any Letter of
Credit as a result of Coast's indemnification of any such issuing bank. The
provisions of this Agreement, as it pertains to Letters of Credit, and any other
present or future documents or agreements between Borrower and Coast relating to
Letters of Credit are cumulative.

3.   INTEREST AND FEES.

     3.1  Interest.  All Loans and all other monetary Obligations shall bear
interest at the rate shown on the Schedule, except where expressly set forth to
the contrary in this Agreement. Interest shall be payable monthly, on the last
day of the month. Interest may, in Coast's discretion, be charged to

                                       6
<PAGE>

Coast Business Credit                               Loan and Security Agreement
===============================================================================

Borrower's loan account, and the same shall thereafter bear interest at the same
rate as the other Loans. Regardless of the amount of Obligations that may be
outstanding from time to time, Borrower shall pay Coast Minimum Monthly Interest
during the term of this Agreement with respect to the Receivable Loans and the
Inventory Loans in the amount set forth on the Schedule.

     3.2  Fees.  Borrower shall pay Coast the fee(s) shown on the Schedule,
which are in addition to all interest and other sums payable to Coast. All fees
shall be deemed fully earned on the Closing Date and are nonrefundable.

4.   SECURITY INTEREST.

     To secure the payment and performance of all of the Obligations when due,
Borrower hereby grants to Coast a security interest in all of Borrower's
interest in the following, whether now owned or hereafter acquired, and wherever
located:  All Receivables, Inventory, Equipment, Investment Property, and
General Intangibles, including, without limitation, all of Borrower's Deposit
Accounts, and all money, and all property now or at any time in the future in
Coast's possession (including claims and credit balances), and all proceeds of
any of the foregoing (including proceeds of any insurance policies, proceeds of
proceeds, and claims against third parties), all products of any of the
foregoing, and all books and records related to any of the foregoing (all of the
foregoing, together with all other property in which Coast may now or in the
future be granted a lien or security interest, is referred to herein,
collectively, as the "Collateral").

5.   CONDITIONS PRECEDENT.

     The obligation of Coast to make the Loans is subject to the satisfaction,
in the sole discretion of Coast, at or prior to the first advance of funds
hereunder, of each, every and all of the following conditions:

     5.1  Status of Accounts at Closing. No accounts payable shall be due and
unpaid ninety (90) days past its due date except for such accounts payable being
contested in good faith in appropriate proceedings and for which adequate
reserves have been provided.

     5.2  Minimum Availability.  Borrower shall have minimum availability
immediately following the initial funding in the amount set forth on the
Schedule.

     5.3  Landlord Waiver.  Coast shall have received duly executed landlord
waivers and access agreements in form and substance satisfactory to Coast, in
Coast's sole and absolute discretion, and, when deemed appropriate by Coast, in
form for recording in the appropriate recording office, with respect to all
leased locations where Borrower maintains any inventory or equipment, provided
that if Coast makes the initial advance without receipt of a landlord waiver, it
will reserve an amount equal to three months rent until such waiver is received
in recordable form.

     5.4  Intentionally Deleted.

     5.5  Executed Agreement.  Coast shall have received this Agreement duly
executed and in form and substance satisfactory to Coast in its sole and
absolute discretion.

     5.6  Opinion of Borrower's Counsel.  Coast shall have received an opinion
of Borrower's counsel, in form and substance satisfactory to Coast in its sole
and absolute discretion.

     5.7  Priority of Coast's Liens.  Coast shall have received the results of
"of record" searches satisfactory to Coast in its sole and absolute discretion,
reflecting its Uniform Commercial Code filings against Borrower indicating that
Coast has a perfected, first priority lien in and upon all of the Collateral,
subject only to Permitted Liens.

     5.8  Insurance.  Coast shall have received copies of the insurance binders
or certificates evidencing Borrower's compliance with Section 8.2 hereof,
including lender's loss payee endorsements.

     5.9  Borrower's Existence.  Coast shall have received copies of Borrower's
articles or certificate of incorporation and all amendments thereto, and a
Certificate of Good Standing, each certified by the Secretary of State of the
state of Borrower's organization, and dated a recent date prior to the Closing
Date, and Coast shall have received Certificates of Foreign Qualification for
Borrower from the Secretary of State of each state

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Coast Business Credit                                Loan and Security Agreement
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wherein the failure to be so qualified could have a Material Adverse Effect.

     5.10      Organizational Documents.  Coast shall have received copies of
Borrower's By-laws and all amendments thereto, and Coast shall have received
copies of the resolutions of the board of directors of Borrower, authorizing the
execution and delivery of this Agreement and the other documents contemplated
hereby, and authorizing the transactions contemplated hereunder and thereunder,
and authorizing specific officers of Borrower to execute the same on behalf of
Borrower, in each case certified by the Secretary or other acceptable officer of
Borrower as of the Closing Date.

     5.11      Taxes.  Coast shall have received evidence from Borrower that
Borrower has complied with all tax withholding and Internal Revenue Service
regulations, in form and substance satisfactory to Coast in its sole and
absolute discretion.

     5.12      Due Diligence.  Coast shall have completed its due diligence with
respect to Borrower.

     5.13      Other Documents and Agreements.  Coast shall have received such
other agreements, instruments and documents as Coast may require in connection
with the transactions contemplated hereby, all in form and substance
satisfactory to Coast in Coast's sole and absolute discretion, and in form for
filing in the appropriate filing office, including, but not limited to, those
documents listed in Section 5 of the Schedule.

6.   REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE BORROWER.

     In order to induce Coast to enter into this Agreement and to make Loans,
Borrower represents and warrants to Coast as follows, and Borrower covenants
that the following representations will continue to be true, and that Borrower
will at all times comply with all of the following covenants:

     6.1       Existence and Authority.  Borrower is and will continue to be,
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its organization.  Borrower is and will continue to be qualified
and licensed to do business in all jurisdictions in which any failure to do so
would have a Material Adverse Effect.  The execution, delivery and performance
by Borrower of this Agreement, and all other documents contemplated hereby (a)
have been duly and validly authorized, (b) are enforceable against Borrower in
accordance with their terms (except as enforcement may be limited by equitable
principles and by bankruptcy, insolvency, reorganization, moratorium or similar
laws relating to creditors' rights generally), and (c) do not violate Borrower's
articles or certificate of incorporation or Borrower's by-laws, or any law or
any material agreement or instrument which is binding upon Borrower or its
property, and (d) do not constitute grounds for acceleration of any material
indebtedness or obligation under any material agreement or instrument which is
binding upon Borrower or its property.

     6.2       Name; Trade Names and Styles.  The name of Borrower set forth in
the heading to this Agreement is its exact legal name. Listed on the Schedule
are all prior names of Borrower and all of Borrower's present and prior trade
names. Borrower shall give Coast thirty (30) days' prior written notice before
changing its name or doing business under any other name. Borrower has complied,
and will in the future comply, with all laws relating to the conduct of business
under a fictitious business name.

     6.3       Place of Business; Location of Collateral.  The address set forth
in the heading to this Agreement is Borrower's chief executive office. In
addition, Borrower has places of business and Collateral is located only at the
locations set forth on the Schedule. Borrower will give Coast at least thirty
(30) days' prior written notice before opening any additional place of business,
changing its chief executive office, or moving any of the Collateral to a
location other than Borrower's Address or one of the locations set forth on the
Schedule.

     6.4       Title to Collateral; Permitted Liens.  Borrower is now, and will
at all times in the future be, the sole owner of all the Collateral, except for
items of Equipment which are leased by Borrower. The Collateral now is and will
remain free and clear of any and all liens, charges, security interests,
encumbrances and adverse claims, except for Permitted Liens. Coast now has, and
will continue to have, a first-priority perfected and enforceable security
interest in all of the Collateral, subject only to the Permitted Liens, and
Borrower will at all times defend Coast and the Collateral against all claims of
others. None of the Collateral now is or will be affixed to any real property in
such a

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Coast Business Credit                                Loan and Security Agreement
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manner, or with such intent, as to become a fixture. Borrower is not and will
not become a lessee under any real property lease pursuant to which the lessor
may obtain any rights in any of the Collateral and no such lease now prohibits,
restrains, impairs or will prohibit, restrain or impair Borrower's right to
remove any Collateral from the leased premises. Whenever any Collateral is
located upon premises in which any third party has an interest (whether as
owner, mortgagee, beneficiary under a deed of trust, lien or otherwise),
Borrower shall, whenever requested by Coast, use its best efforts to cause such
third party to execute and deliver to Coast, in form acceptable to Coast, such
waivers and subordinations as Coast shall specify, so as to ensure that Coast's
rights in the Collateral are, and will continue to be, superior to the rights of
any such third party. Borrower will keep in full force and effect, and will
comply with all the terms of, any lease of real property where any of the
Collateral now or in the future may be located.

     6.5       Maintenance of Collateral.  Borrower will maintain the Collateral
in good working condition, and Borrower will not use the Collateral for any
unlawful purpose. Borrower will immediately advise Coast in writing of any
material loss or damage to the Collateral.

     6.6       Books and Records.  Borrower has maintained and will maintain at
Borrower's Address complete and accurate books and records, comprising an
accounting system in accordance with GAAP.

     6.7       Financial Condition, Statements and Reports.  All financial
statements now or in the future delivered to Coast have been, and will be,
prepared in conformity with GAAP (except, in the case of unaudited financial
statements, for the absence of footnotes and subject to normal year-end
adjustments) and now and in the future will fairly reflect the financial
condition of Borrower, at the times and for the periods therein stated. Between
the last date covered by any such statement provided to Coast and the date
hereof, there has been no Material Adverse Effect. Borrower is now and will
continue to be Solvent.

     6.8       Tax Returns and Payments; Pension Contributions.  Borrower has
timely filed, and will timely file, all tax returns and reports required by
foreign, federal, state and local law, and Borrower has timely paid, and will
timely pay, all foreign, federal, state and local taxes, assessments, deposits
and contributions now or in the future owed by Borrower.  Borrower may, however,
defer payment of any contested taxes, provided that Borrower (i) in good faith
contests Borrower's obligation to pay the taxes by appropriate proceedings
promptly and diligently instituted and conducted, (ii) notifies Coast in writing
of the commencement of, and any material development in, the proceedings, and
(iii) posts bonds or takes any other steps required to keep the contested taxes
from becoming a lien upon any of the Collateral.  As of the date hereof,
Borrower is unaware of any claims or adjustments proposed for any of Borrower's
prior tax years which could result in additional taxes becoming due and payable
by Borrower.  Borrower has paid, and shall continue to pay all amounts necessary
to fund all present and future pension, profit sharing and deferred compensation
plans in accordance with their terms, and Borrower has not and will not withdraw
from participation in, permit partial or complete termination of, or permit the
occurrence of any other event with respect to, any such plan which could result
in any liability of Borrower, including any liability to the Pension Benefit
Guaranty Corporation or its successors or any other governmental agency.
Borrower shall, at all times, utilize the services of an outside payroll service
providing for the automatic deposit of all payroll taxes payable by Borrower.

     6.9       Compliance with Law.  To the best of Borrower's knowledge,
Borrower has complied, and will comply, in all material respects, with all
provisions of all material foreign, federal, state and local laws and
regulations relating to Borrower, including, but not limited to, the Fair Labor
Standards Act, and those relating to Borrower's ownership of real or personal
property, the conduct and licensing of Borrower's business, and environmental
matters.

     6.10      Litigation.  Except as disclosed in the Schedule, there is no
claim, suit, litigation, proceeding or investigation pending or (to best of
Borrower's knowledge) threatened by or against or affecting Borrower in any
court or before any governmental agency (or any basis therefor known to
Borrower) which may result, either separately or in the aggregate, in a Material
Adverse Effect. Borrower will promptly inform Coast in writing of any claim,
proceeding, litigation or investigation in the future threatened or instituted
by or against Borrower involving an amount set forth on the Schedule.

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Coast Business Credit                                Loan and Security Agreement
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     6.11      Use of Proceeds. All proceeds of all Loans shall be used solely
for lawful business purposes. Borrower is not purchasing or carrying any "margin
stock" (as defined in Regulation G of the Board of Governors of the Federal
Reserve System) and no part of the proceeds of any Loan will be used to purchase
or carry any "margin stock" or to extend credit to others for the purpose of
purchasing or carrying any "margin stock."

7.   RECEIVABLES.

     7.1       Representations Relating to Receivables.  Borrower represents and
warrants to Coast as follows: Each Receivable with respect to which Loans are
requested by Borrower shall, on the date each Loan is requested and made,
represent an undisputed bona fide existing unconditional obligation of the
Account Debtor created by the sale, delivery and acceptance of goods or the
rendition of services in the ordinary course of Borrower's business.

     7.2       Representations Relating to Documents and Legal Compliance.
Borrower represents and warrants to Coast as follows:  All statements made and
all unpaid balances appearing in all invoices, instruments and other documents
evidencing the Receivables are and shall be true and correct and all such
invoices, instruments and other documents and all of Borrower's books and
records are and shall be genuine and in all respects what they purport to be.
All sales and other transactions underlying or giving rise to each Receivable
shall fully comply with all applicable laws and governmental rules and
regulations.  All signatures and indorsements on all documents, instruments, and
agreements relating to all Receivables are and shall be genuine, and all such
documents, instruments and agreements are and shall be legally enforceable in
accordance with their terms.

     7.3       Schedules and Documents relating to Receivables.  Borrower shall
deliver to Coast via facsimile, unless otherwise directed by Coast, at such
locations and at such intervals as Coast may request, transaction reports and
loan requests, schedules of Receivables, and schedules of collections, all on
Coast's standard forms; provided, however, that Borrower's failure to execute
and deliver the same shall not affect or limit Coast's security interest and
other rights in all of Borrower's Receivables, nor shall Coast's failure to
advance or lend against a specific Receivable affect or limit Coast's security
interest and other rights therein. Loan requests received after 10:30 A.M. Los
Angeles, California time, will not be considered by Coast until the next
Business Day. Together with each such schedule, or later if requested by Coast,
Borrower shall furnish Coast with copies (or, at Coast's request, originals) of
all contracts, orders, invoices, and other similar documents, and all original
shipping instructions, delivery receipts, bills of lading, and other evidence of
delivery, for any goods the sale or disposition of which gave rise to such
Receivables, and Borrower warrants the genuineness of all of the foregoing.
Borrower shall also furnish to Coast an aged accounts receivable trial balance
in such form and at such intervals as Coast shall request. In addition, Borrower
shall deliver to Coast the originals of all instruments, chattel paper, security
agreements, guarantees and other documents and property evidencing or securing
any Receivables, upon receipt thereof and in the same form as received, with all
necessary indorsements, all of which shall be with recourse. Borrower shall also
provide Coast with copies of all credit memos as and when requested by Coast.

     7.4       Collection of Receivables.  Borrower shall have the right to
collect all Receivables, unless and until an Event of Default has occurred.
Borrower shall hold all payments on, and proceeds of, Receivables in trust for
Coast, and Borrower shall deliver all such payments and proceeds to Coast within
one (1) Business Day after receipt by Borrower, in their original form, duly
endorsed to Coast, to be applied to the Obligations in such order as Coast shall
determine.  Coast may, in its discretion, require that all proceeds of
Collateral be deposited by Borrower into a lockbox account, or such other
"blocked account" as Coast may specify, pursuant to a blocked account agreement
in such form as Coast may specify.  Coast or its designee may, at any time,
notify Account Debtors that Coast has been granted a security interest in the
Receivables.

     7.5       Remittance of Proceeds.  All proceeds arising from the
disposition of any Collateral shall be delivered to Coast within one (1)
Business Day after receipt by Borrower, in their original form, duly endorsed to
Coast, to be applied to the Obligations in such order as Coast shall determine.
Borrower agrees that it will not commingle proceeds of Collateral with any of
Borrower's other funds or property, but will hold

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Coast Business Credit                                Loan and Security Agreement
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such proceeds separate and apart from such other funds and property and in an
express trust for Coast. Nothing in this Section limits the restrictions on
disposition of Collateral set forth elsewhere in this Agreement.

     7.6       Disputes.  Borrower shall notify Coast promptly of all disputes
or claims relating to Receivables.  Borrower shall not forgive (completely or
partially), compromise or settle any Receivable for less than payment in full,
or agree to do any of the foregoing, except that Borrower may do so, provided
that: (a) Borrower does so in good faith, in a commercially reasonable manner,
in the ordinary course of business, and in arm's length transactions, which are
reported to Coast on the regular reports provided to Coast; (b) no Default or
Event of Default has occurred and is continuing; and (c) taking into account all
such discounts settlements and forgiveness, the total outstanding Loans will not
exceed the Credit Limit.  Coast may, at any time after the occurrence of an
Event of Default, settle or adjust disputes or claims directly with Account
Debtors for amounts and upon terms which Coast considers advisable in its
reasonable credit judgment and, in all cases, Coast shall credit Borrower's Loan
account with only the net amounts received by Coast in payment of any
Receivables.

     7.7       Returns.  Provided no Event of Default has occurred and is
continuing, if any Account Debtor returns any Inventory to Borrower in the
ordinary course of its business, Borrower shall promptly determine the reason
for such return and promptly issue a credit memorandum to the Account Debtor in
the appropriate amount.  In the event any attempted return occurs after the
occurrence of any Event of Default, Borrower shall (a) hold the returned
Inventory in trust for Coast, (b) segregate all returned Inventory from all of
Borrower's other property, (c) conspicuously label the returned Inventory as
subject to Coast's security interest, and (d) immediately notify Coast of the
return of any Inventory, specifying the reason for such return, the location and
condition of the returned Inventory, and on Coast's request deliver such
returned Inventory to Coast.

     7.8       Verification.  Coast may, from time to time, verify directly with
the respective Account Debtors the validity, amount and other matters relating
to the Receivables, by means of mail, telephone or otherwise, either in the name
of Borrower or Coast or such other name as Coast may choose.

     7.9       No Liability.  Coast shall not under any circumstances be
responsible or liable for any shortage or discrepancy in, damage to, or loss or
destruction of, any goods, the sale or other disposition of which gives rise to
a Receivable, or for any error, act, omission or delay of any kind occurring in
the settlement, failure to settle, collection or failure to collect any
Receivable, or for settling any Receivable in good faith for less than the full
amount thereof, nor shall Coast be deemed to be responsible for any of
Borrower's obligations under any contract or agreement giving rise to a
Receivable. Nothing herein shall, however, relieve Coast from liability for its
own gross negligence or willful misconduct.

8.   ADDITIONAL DUTIES OF THE BORROWER.

     8.1       Financial and Other Covenants. Borrower shall at all times comply
with the financial and other covenants set forth in the Schedule.

     8.2       Insurance.  Borrower shall, at all times insure all of the
tangible personal property Collateral and carry such other business insurance,
with insurers reasonably acceptable to Coast, in such form and amounts as Coast
may reasonably require, and Borrower shall provide evidence of such insurance to
Coast, so that Coast is satisfied that such insurance is, at all times, in full
force and effect.  All liability insurance policies of Borrower shall name Coast
as an additional insured, and all property casualty and related insurance
policies of Borrower shall name Coast as a loss payee thereon and Borrower shall
cause a lender's loss payee endorsement in form reasonably acceptable to Coast.
Upon receipt of the proceeds of any such insurance, Coast shall apply such
proceeds in reduction of the Obligations as Coast shall determine in its sole
discretion, except that, provided no Default or Event of Default has occurred
and is continuing, Coast shall release to Borrower insurance proceeds with
respect to Equipment totaling less than the amount set forth in Section 8 of the
Schedule, which shall be utilized by Borrower for the replacement of the
Equipment with respect to which the insurance proceeds were paid.  Coast may
require reasonable assurance that the insurance proceeds so released will be so
used.  If Borrower fails to provide or pay for any insurance, Coast may, but is
not obligated to, obtain the same at

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Borrower's expense. Borrower shall promptly deliver to Coast copies of all
reports made to insurance companies.

     8.3       Reports.  Borrower, at its expense, shall provide Coast with the
written reports set forth in Section 8 of the Schedule, and such other written
reports with respect to Borrower (including budgets, sales projections,
operating plans and other financial documentation), as Coast shall from time to
time reasonably specify.

     8.4       Access to Collateral, Books and Records.  At reasonable times but
not less frequently than quarterly and on one (1) Business Day's notice, Coast,
or its agents, shall have the right to perform Audits. Coast shall take
reasonable steps to keep confidential all confidential information obtained in
any Audit, but Coast shall have the right to disclose any such information to
its auditors, regulatory agencies, and attorneys, and pursuant to any subpoena
or other legal process. The Audits shall be at Borrower's expense and the charge
for the Audits shall be Seven Hundred Fifty Dollars ($750) per person per day
(or such higher amount as shall represent Coast's then current standard charge
for the same), plus reasonable out-of-pocket expenses. Borrower will not enter
into any agreement with any accounting firm, service bureau or third party to
store Borrower's books or records at any location other than Borrower's Address,
without first notifying Coast of the same and obtaining the written agreement
from such accounting firm, service bureau or other third party to give Coast the
same rights with respect to access to books and records and related rights as
Coast has under this Loan Agreement. Borrower shall also take all necessary
steps to assure that this material accounting and software, systems and
applications, and those of its accounting firm, service bureau or any other
third party vendor or supplier, will on a timely basis, adequately and
completely address the Year 2000 Problem in all material aspects.

     8.5       Negative Covenants.  Borrower shall not, without Coast's prior
written consent, do any of the following:

               (a)  merge or consolidate with another entity, except in a
transaction in which (i) the owners of the Borrower hold at least fifty percent
(50%) of the ownership interest in the surviving entity immediately after such
merger or consolidation, and (ii) the Borrower is the surviving entity;

               (b)  acquire any assets, except (i) in the ordinary course of
business, or (ii) in a transaction or a series of transactions not involving the
payment of an aggregate amount in excess of the amount set forth in Section 8 of
the Schedule;

               (c)  enter into any other transaction outside the ordinary course
of business;

               (d)  sell or transfer any Collateral, except for the sale of
finished Inventory in the ordinary course of Borrower's business, and except for
the sale of obsolete or unneeded Equipment in the ordinary course of business;

               (e)  store any Inventory or other Collateral with any
warehouseman or other third party;

               (f)  sell any Inventory on a sale-or-return, guaranteed sale,
consignment, or other contingent basis;

               (g)  make any loans of any money or other assets, except (i)
advances to customers or suppliers in the ordinary course of business, (ii)
travel advances, employee relocation loans and other employee loans and advances
in the ordinary course of business, and (iii) loans to employees, officers and
directors for the purpose of purchasing equity securities of the Borrower;

               (h)  incur any debts, outside the ordinary course of business,
which would have a Material Adverse Effect;

               (i)  guarantee or otherwise become liable with respect to the
obligations of another party or entity;

               (j)  pay or declare any dividends or distributions on the
ownership interests in Borrower (except for dividends or distributions payable
solely in stock form of ownership interests in Borrower);

               (k)  make any change in Borrower's capital structure which would
have a Material Adverse Effect; or

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Coast Business Credit                                Loan and Security Agreement
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               (l)  dissolve or elect to dissolve.

     Transactions permitted by the foregoing provisions of this Section are only
permitted if no Default or Event of Default is continuing or would occur as a
result of such transaction.

     8.6       Litigation Cooperation. Should any third-party suit or proceeding
be instituted by or against Coast with respect to any Collateral or relating to
Borrower, Borrower shall, without expense to Coast, make available Borrower and
its officers, employees and agents and Borrower's books and records, to the
extent that Coast may deem them reasonably necessary in order to prosecute or
defend any such suit or proceeding.

     8.7       Further Assurances.  Borrower agrees, at its expense, on request
by Coast, to execute all documents and take all actions, as Coast, may deem
reasonably necessary or useful in order to perfect and maintain Coast's
perfected security interest in the Collateral, and in order to fully consummate
the transactions contemplated by this Agreement. Without limiting the foregoing,
such documents and actions may include, without limitation, Borrower's
cooperation with Coast (i) in obtaining a control agreement in form and
substance satisfactory to Coast in its discretion with respect to Collateral
consisting of Deposit Accounts, Investment Property, letter of credit rights and
electronic chattel paper and (ii) in notifying a third party in possession of
Collateral of Coast's security interest and obtaining an acknowledgement from
the third party that it is holding the Collateral for the benefit of Coast.

9.   TERM.

     9.1       Maturity Date.  This Agreement shall continue in effect until the
Maturity Date; provided that the Maturity Date shall automatically be extended,
and this Agreement shall automatically and continuously renew, for successive
additional terms of one year each, unless one party gives written notice to the
other, not less than one hundred twenty (120) days prior to the Maturity Date or
the next Renewal Date, that such party elects to terminate this Agreement
effective on the Maturity Date or such next Renewal Date. If this Agreement is
renewed under this Section 9.1, Borrower shall pay to Coast a Renewal Fee in the
amount shown in Section 3 of the Schedule. The Renewal Fee shall be due and
payable on the Renewal Date and thereafter shall bear interest at a rate equal
to the rate applicable to the Receivable Loans.

     9.2       Early Termination.  This Agreement may be terminated prior to the
Maturity Date as follows: (a) by Borrower, effective three (3) Business Days
after written notice of termination is given to Coast; or (b) by Coast at any
time after the occurrence of an Event of Default, without notice, effective
immediately. If this Agreement is terminated by Borrower or by Coast under this
Section 9.2, Borrower shall pay to Coast an Early Termination Fee in the amount
shown in Section 3 of the Schedule. The Early Termination Fee shall be due and
payable on the effective date of termination and thereafter shall bear interest
at a rate equal to the rate applicable to the Receivable Loans.

     9.3       Payment of Obligations.  On the Maturity Date or on any earlier
effective date of termination, Borrower shall pay and perform in full all
Obligations, whether evidenced by installment notes or otherwise, and whether or
not all or any part of such Obligations are otherwise then due and payable.
Without limiting the generality of the foregoing, if on the Maturity Date, the
Renewal Date, or on any earlier effective date of termination, there are any
outstanding Letters of Credit issued by Coast or issued by another institution
based upon an application, guarantee, indemnity or similar agreement on the part
of Coast, then on such date Borrower shall provide to Coast cash collateral in
an amount equal to the face amount of all such Letters of Credit plus all
interest, fees and costs due or to become due in connection therewith, to secure
all of the Obligations relating to said Letters of Credit, pursuant to Coast's
then standard form cash pledge agreement. Notwithstanding any termination of
this Agreement, all of Coast's security interests in all of the Collateral and
all of the terms and provisions of this Agreement shall continue in full force
and effect until all Obligations have been paid and performed in full; provided
that, without limiting the fact that Loans are subject to the discretion of
Coast, Coast may, in its sole discretion, refuse to make any further Loans after
termination. No termination shall in any way affect or impair any right or
remedy of Coast, nor shall any such termination relieve Borrower of any
Obligation to Coast, until all of the Obligations have been paid and performed
in full. Upon payment and performance in full of all the Obligations and
termination of this Agreement, Coast shall promptly

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Coast Business Credit                                Loan and Security Agreement
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deliver to Borrower termination statements, requests for reconveyances and such
other documents as may be required to fully terminate Coast's security
interests.

10.  EVENTS OF DEFAULT AND REMEDIES

     10.1      Events of Default.  The occurrence of any of the following events
shall constitute an "Event of Default" under this Agreement, and Borrower shall
give Coast immediate written notice thereof:

               (a)  Any warranty, representation, statement, report or
certificate made or delivered to Coast by Borrower or any of Borrower's
officers, employees or agents, now or in the future, shall be untrue or
misleading and results in a Material Adverse Effect; or

               (b)  Borrower shall fail to pay when due any Loan or any interest
thereon or any other monetary Obligation; or

               (c)  the total Loans and other Obligations outstanding at any
time shall exceed the Credit Limit; or

               (d)  Borrower shall fail to deliver the proceeds of Collateral to
Coast as provided in Section 7.5 above, or shall fail to give Coast access to
its books and records or Collateral as provided in Section 8.4 above, or shall
breach any negative covenant set forth in Section 8.5 above; or

               (e)  Borrower shall fail to comply with the financial covenants
(if any) set forth in the Schedule or shall fail to perform any other non-
monetary Obligation which by its nature cannot be cured; or

               (f)  Borrower shall fail to perform any other non-monetary
Obligation, which failure is not cured within seven (7) Business Days after the
date due; or

               (g)  Any levy, assessment, attachment, seizure, lien or
encumbrance (other than a Permitted Lien) is made on all or any part of the
Collateral which is not cured within ten (10) days after the occurrence of the
same; unless the same is either fully protected by insurance assigned to Coast
without a reservation of rights or is fully bonded including any interest and
penalties; or

               (h)  any default or event of default occurs under any obligation
secured by a Permitted Lien, which is not cured within any applicable cure
period or waived in writing by the holder of the Permitted Lien; or

               (i)  Borrower breaches any material contract or obligation, which
has or may reasonably be expected to have a Material Adverse Effect; or

               (j)  Dissolution, termination of existence, insolvency or
business failure of Borrower or any guarantor of any of the Obligations; or
appointment of a receiver, trustee or custodian, for all or any part of the
property of, assignment for the benefit of creditors by, or the commencement of
any proceeding by Borrower or any guarantor of any of the Obligations under any
reorganization, bankruptcy, insolvency, arrangement, readjustment of debt,
dissolution or liquidation law or statute of any jurisdiction, now or in the
future in effect; or

               (k)  the commencement of any proceeding against Borrower or any
guarantor of any of the Obligations under any reorganization, bankruptcy,
insolvency, arrangement, readjustment of debt, dissolution or liquidation law or
statute of any jurisdiction, now or in the future in effect, which is (i) not
timely controverted, or (ii) not cured by the dismissal thereof within forty
five (45) days after the date commenced; or

               (l)  revocation or termination of, or limitation or denial of
liability upon, any guaranty of the Obligations or any attempt to do any of the
foregoing, or commencement of proceedings by any guarantor of any of the
Obligations under any bankruptcy or insolvency law; or

               (m)  revocation or termination of, or limitation or denial of
liability upon, any pledge of any certificate of deposit, securities or other
property or asset of any kind pledged by any third party to secure any or all of
the Obligations, or any attempt to do any of the foregoing, or commencement of
proceedings by or against any such third party under any bankruptcy or
insolvency law; or

                                       14
<PAGE>

Coast Business Credit                                Loan and Security Agreement
--------------------------------------------------------------------------------

          (n)  Borrower or any guarantor of any of the Obligations makes any
payment on account of any indebtedness or obligation which has been subordinated
to the Obligations, other than as permitted in the applicable subordination
agreement, or if any Person who has subordinated such indebtedness or
obligations terminates or in any way limits his subordination agreement; or

          (o)  Except as permitted under Section 8.5(a), Borrower shall suffer
or experience any Change of Control without Coast's prior written consent, which
consent shall be in the discretion of Coast in the exercise of its reasonable
business judgment; or

          (p)  Borrower shall generally not pay its debts as they become due, or
Borrower shall conceal, remove or transfer any part of its property, with intent
to hinder, delay or defraud its creditors, or make or suffer any transfer of any
of its property which may be fraudulent under any bankruptcy, fraudulent
conveyance or similar law; or

          (q)  there shall be any Material Adverse Effect.

Coast may cease making any Loans or extending any credit hereunder during any of
the above cure periods.

     10.2 Remedies.  Upon the occurrence, and during the continuance, of any
Event of Default, Coast, at its option, and without notice or demand of any kind
(all of which are hereby expressly waived by Borrower), may do any one or more
of the following:

          (a)  Cease making Loans or otherwise extending credit to Borrower
under this Agreement or any other document or agreement;

          (b)  Accelerate and declare all or any part of the Obligations to be
immediately due, payable and performable, notwithstanding any deferred or
installment payments allowed by any instrument evidencing or relating to any
Obligation;

          (c)  Take possession of any or all of the Collateral wherever it may
be found, and for that purpose Borrower hereby authorizes Coast without judicial
process to enter onto any of Borrower's premises without interference to search
for, take possession of, keep, store or remove any of the Collateral, and remain
on the premises or cause a custodian to remain on the premises in exclusive
control thereof, without charge for so long as Coast deems it reasonably
necessary in order to complete the enforcement of its rights under this
Agreement or any other agreement; provided, however, that should Coast seek to
take possession of any of the Collateral by Court process, Borrower hereby
irrevocably waives:

               (i)   any bond and any surety or security relating thereto
required by any statute, court rule or otherwise as an incident to such
possession;

               (ii)  any demand for possession prior to the commencement of any
suit or action to recover possession thereof; and

               (iii) any requirement that Coast retain possession of, and not
dispose of, any such Collateral until after trial or final judgment;

          (d)  Require Borrower to assemble any or all of the Collateral and
make it available to Coast at places designated by Coast which are reasonably
convenient to Coast and Borrower, and to remove the Collateral to such locations
as Coast may deem advisable;

          (e)  Complete the processing, manufacturing or repair of any
Collateral prior to a disposition thereof and, for such purpose and for the
purpose of removal, Coast shall have the right to use Borrower's premises,
vehicles, hoists, lifts, cranes, equipment and all other property without
charge. Coast is hereby granted a license or other right to use, without charge,
Borrower's labels, patents, copyrights, rights of use of any name, trade
secrets, trade names, trademarks, service marks, and advertising matter, or any
property of a similar nature, as it pertains to the Collateral, in completing
production of, advertising for sale, and selling any Collateral and Borrower's
rights under all licenses and all franchise agreements shall inure to Coast's
benefit;

          (f)  Sell, lease or otherwise dispose of any of the Collateral, in its
condition at the time Coast obtains possession of it or after further
manufacturing, processing or repair, at one or more public and/or private sales,
in lots or in bulk, for cash, exchange or other property, or on credit, and to

                                       15
<PAGE>

Coast Business Credit                                Loan and Security Agreement
--------------------------------------------------------------------------------

adjourn any such sale from time to time without notice other than oral
announcement at the time scheduled for sale. Coast shall have the right to
conduct such disposition on Borrower's premises without charge, for such time or
times as Coast deems reasonable, or on Coast's premises, or elsewhere and the
Collateral need not be located at the place of disposition. Coast may directly
or through any affiliated company purchase or lease any Collateral at any such
public disposition, and if permissible under applicable law, at any private
disposition. Any sale or other disposition of Collateral shall not relieve
Borrower of any liability Borrower may have if any Collateral is defective as to
title or physical condition or otherwise at the time of sale;

          (g)  Demand payment of, and collect any Receivables and General
Intangibles comprising Collateral and, in connection therewith, Borrower
irrevocably authorizes Coast to endorse or sign Borrower's name on all
collections, receipts, instruments and other documents, to take possession of
and open mail addressed to Borrower and remove therefrom payments made with
respect to any item of the Collateral or proceeds thereof, and, in Coast's sole
discretion, to grant extensions of time to pay, compromise claims and settle
Receivables and the like for less than face value; and

          (h)  Demand and receive possession of any of Borrower's federal and
state income tax returns and the books and records utilized in the preparation
thereof or referring thereto.

     All attorneys' fees, expenses, costs, liabilities and obligations incurred
by Coast (including attorneys' fees and expenses incurred in connection with
bankruptcy) with respect to the foregoing shall be due from the Borrower to
Coast on demand. Coast may charge the same to Borrower's loan account, and the
same shall thereafter bear interest at the same rate as is applicable to the
Receivable Loans.  Without limiting any of Coast's rights and remedies, from and
after the occurrence of any Event of Default, the interest rate applicable to
the Obligations shall be increased by an additional three percent per annum.

     10.3 Standards for Determining Commercial Reasonableness. Borrower and
Coast agree that a sale or other disposition (collectively, "sale") of any
Collateral which complies with the following standards will conclusively be
deemed to be commercially reasonable:

          (a)  Notice of the sale is given to Borrower at least five (5) days
prior to the sale, and, in the case of a public sale, notice of the sale is
published at least five (5) days before the sale in a newspaper of general
circulation in the county where the sale is to be conducted;

          (b)  Notice of the sale describes the collateral in general, non-
specific terms;

          (c)  The sale is conducted at a place designated by Coast, with or
without the Collateral being present;

          (d)  The sale commences at any time between 8:00 a.m. and 6:00 p.m.
Los Angeles, California time;

          (e)  Payment of the purchase price in cash or by cashier's check or
wire transfer is required; and

          (f)  With respect to any sale of any of the Collateral, Coast may (but
is not obligated to) direct any prospective purchaser to ascertain directly from
Borrower any and all information concerning the same.

     Coast shall be free to employ other methods of noticing and selling the
Collateral, in its discretion, if they are commercially reasonable.

     10.4 Power of Attorney. Borrower grants to Coast an irrevocable power of
attorney coupled with an interest, authorizing and permitting Coast (acting
through any of its employees, attorneys or agents) at any time, at its option,
but without obligation, with or without notice to Borrower, and at Borrower's
expense, to do any or all of the following, in Borrower's name or otherwise, but
Coast agrees to exercise the following powers in a commercially reasonable
manner:

          (a)  Execute on behalf of Borrower any documents that Coast may, in
its sole discretion, deem advisable in order to perfect and maintain Coast's
security interest in the Collateral, or in order to exercise a right of Borrower
or Coast, or in order to fully consummate all the transactions

                                       16
<PAGE>

Coast Business Credit                                Loan and Security Agreement
--------------------------------------------------------------------------------

contemplated under this Agreement, and all other present and future agreements;

          (b)  Execute on behalf of Borrower any document exercising,
transferring or assigning any option to purchase, sell or otherwise dispose of
or to lease (as lessor or lessee) any real or personal property which is part of
Coast's Collateral or in which Coast has an interest;

          (c)  Execute on behalf of Borrower, any invoices relating to any
Receivable, any draft against any Account Debtor and any notice to any Account
Debtor, any proof of claim in bankruptcy, any Notice of Lien, claim of
mechanic's, materialman's or other lien, or assignment or satisfaction of
mechanic's, materialman's or other lien;

          (d)  Take control in any manner of any cash or non-cash items of
payment or proceeds of Collateral; endorse the name of Borrower upon any
instruments, or documents, evidence of payment or Collateral that may come into
Coast's possession;

          (e)  Endorse all checks and other forms of remittances received by
Coast;

          (f)  Pay, contest or settle any lien, charge, encumbrance, security
interest and adverse claim in or to any of the Collateral, or any judgment based
thereon, or otherwise take any action to terminate or discharge the same;

          (g)  Grant extensions of time to pay, compromise claims and settle
Receivables and General Intangibles for less than face value and execute all
releases and other documents in connection therewith;

          (h)  Pay any sums required on account of Borrower's taxes or to secure
the release of any liens therefor, or both;

          (i)  Settle and adjust, and give releases of, any insurance claim that
relates to any of the Collateral and obtain payment therefor;

          (j)  Instruct any third party having custody or control of any books
or records belonging to, or relating to, Borrower to give Coast the same rights
of access and other rights with respect thereto as Coast has under this
Agreement; and

          (k)  Take any action or pay any sum required of Borrower pursuant to
this Agreement and any other present or future agreements.

     Any and all sums paid and any and all costs, expenses, liabilities,
obligations and attorneys' fees incurred by Coast (including attorneys' fees and
expenses incurred pursuant to bankruptcy) with respect to the foregoing shall be
added to and become part of the Obligations, and shall be payable on demand.
Coast may charge the foregoing to Borrower's loan account and the foregoing
shall thereafter bear interest at the same rate applicable to the Receivable
Loans.  In no event shall Coast's rights under the foregoing power of attorney
or any of Coast's other rights under this Agreement be deemed to indicate that
Coast is in control of the business, management or properties of Borrower.
Borrower shall pay, indemnify, defend, and hold Coast and each of its officers,
directors, employees, counsel, agents, and attorneys-in-fact (each, an
"Indemnified Person") harmless (to the fullest extent permitted by law) from and
against any and all claims, demands, suits, actions, investigations,
proceedings, and damages, and all attorneys fees and disbursements and other
costs and expenses actually incurred in connection therewith (as and when they
are incurred and irrespective of whether suit is brought), at any time asserted
against, imposed upon, or incurred by any of them in connection with or as a
result of or related to the execution, delivery, enforcement, performance, and
administration of this Agreement and any other Loan Documents or the
transactions contemplated herein, and with respect to any investigation,
litigation, or proceeding related to this Agreement, any other Loan Document, or
the use of the proceeds of the credit provided hereunder (irrespective of
whether any Indemnified Person is a party thereto), or any act, omission, event
or circumstance in any manner related thereto (all the foregoing, collectively,
the "Indemnified Liabilities").  Borrower shall have no obligation to any
Indemnified Person hereunder with respect to any Indemnified Liability that a
court of competent jurisdiction finally determines to have resulted from the
gross negligence or willful misconduct of such Indemnified Person.  This
provision shall survive the termination of this Agreement and the repayment of
the Obligations.

                                       17
<PAGE>

Coast Business Credit                                Loan and Security Agreement
--------------------------------------------------------------------------------

     10.5 Application of Proceeds. All proceeds realized as the result of any
sale of the Collateral shall be applied by Coast first to the costs, expenses,
liabilities, obligations and attorneys' fees incurred by Coast in the exercise
of its rights under this Agreement, second to the interest due upon any of the
Obligations, and third to the principal of the Obligations, in such order as
Coast shall determine in its sole discretion. Any surplus shall be paid to
Borrower or other persons legally entitled thereto; Borrower shall remain liable
to Coast for any deficiency. If, Coast, in its sole discretion, directly or
indirectly enters into a deferred payment or other credit transaction with any
purchaser at any sale of Collateral, Coast shall have the option, exercisable at
any time, in its sole discretion, of either reducing the Obligations by the
principal amount of purchase price or deferring the reduction of the Obligations
until the actual receipt by Coast of the cash therefor.

     10.6 Remedies Cumulative. In addition to the rights and remedies set forth
in this Agreement, Coast shall have all the other rights and remedies accorded a
secured party in equity, under the Code, and under all other applicable laws,
and under any other instrument or agreement now or in the future entered into
between Coast and Borrower, and all of such rights and remedies are cumulative
and none is exclusive. Exercise or partial exercise by Coast of one or more of
its rights or remedies shall not be deemed an election, nor bar Coast from
subsequent exercise or partial exercise of any other rights or remedies. The
failure or delay of Coast to exercise any rights or remedies shall not operate
as a waiver thereof, but all rights and remedies shall continue in full force
and effect until all of the Obligations have been indefeasibly paid and
performed.

11.  GENERAL PROVISIONS.

     11.1 Interest Computation. In computing interest on the Obligations, all
checks, wire transfers and other items of payment received by Coast (including
proceeds of Receivables and payment of the Obligations in full) shall be deemed
applied by Coast on account of the Obligations three (3) Business Days after
receipt by Coast of immediately available funds, and, for purposes of the
foregoing, any such funds received after 10:30 AM Los Angeles, California time,
on any day shall be deemed received on the next Business Day. Coast shall be
entitled to charge Borrower's account for such three (3) Business Days of
"clearance" or "float" at the rate(s) set forth in Section 3 of the Schedule on
all checks, wire transfers and other items received by Coast, regardless of
whether such three (3) Business Days of "clearance" or "float" actually occur,
and shall be deemed to be the equivalent of charging three (3) Business Days of
interest on such collections. This across-the-board three (3) Business Day
clearance or float charge on all collections is acknowledged by the parties to
constitute an integral aspect of the pricing of Coast's financing of Borrower.
Coast shall not, however, be required to credit Borrower's account for the
amount of any item of payment which is unsatisfactory to Coast in its sole
discretion, and Coast may charge Borrower's loan account for the amount of any
item of payment which is returned to Coast unpaid.

     11.2 Application of Payments. Subject to Section 7.5 hereof, all payments
with respect to the Obligations may be applied, and in Coast's sole discretion
reversed and re-applied, to the Obligations, in such order and manner as Coast
shall determine in its sole discretion.

     11.3 Charges to Accounts. Coast may, in its discretion, require that
Borrower pay monetary Obligations in cash to Coast, or charge them to Borrower's
Loan account, in which event they will bear interest from the date due to the
date paid at the same rate applicable to the Loans.

     11.4 Monthly Accountings. Coast shall provide Borrower monthly with an
account of advances, charges, expenses and payments made pursuant to this
Agreement. Such account shall be deemed correct, accurate and binding on
Borrower and an account stated (except for reverses and reapplications of
payments made and corrections of errors discovered by Coast), unless Borrower
notifies Coast in writing to the contrary within thirty (30) days after each
account is rendered, describing the nature of any alleged errors or omissions.

     11.5 Notices. All notices to be given under this Agreement shall be in
writing and shall be given either personally or by reputable private delivery
service or by regular first-class mail, facsimile or certified mail return
receipt requested, addressed to Coast or Borrower at the addresses shown in the
heading to this Agreement, or at any other address designated in writing by one
party to the other party. Notices to Coast shall be directed to the Commercial
Finance Division, to the attention of

                                       18
<PAGE>

Coast Business Credit                                Loan and Security Agreement
--------------------------------------------------------------------------------

the Division Manager or the Division Credit Manager. All notices shall be deemed
to have been given upon delivery in the case of notices personally delivered,
faxed (at time of confirmation of transmission), or at the expiration of one (1)
Business Day following delivery to the private delivery service, or two (2)
Business Days following the deposit thereof in the United States mail, with
postage prepaid.

     11.6  Severability. Should any provision of this Agreement be held by any
court of competent jurisdiction to be void or unenforceable, such defect shall
not affect the remainder of this Agreement, which shall continue in full force
and effect.

     11.7  Integration. This Agreement and such other written agreements,
documents and instruments as may be executed in connection herewith are the
final, entire and complete agreement between Borrower and Coast and supersede
all prior and contemporaneous negotiations and oral representations and
agreements, all of which are merged and integrated in this Agreement. There are
no oral understandings, representations or agreements between the parties which
are not set forth in this Agreement or in other written agreements signed by the
parties in connection herewith.

     11.8  Waivers. The failure of Coast at any time or times to require
Borrower to strictly comply with any of the provisions of this Agreement or any
other present or future agreement between Borrower and Coast shall not waive or
diminish any right of Coast later to demand and receive strict compliance
therewith. Any waiver of any Default shall not waive or affect any other
Default, whether prior or subsequent, and whether or not similar. None of the
provisions of this Agreement or any other agreement now or in the future
executed by Borrower and delivered to Coast shall be deemed to have been waived
by any act or knowledge of Coast or its agents or employees, but only by a
specific written waiver signed by an authorized officer of Coast and delivered
to Borrower. Borrower waives demand, protest, notice of protest and notice of
default or dishonor, notice of payment and nonpayment, release, compromise,
settlement, extension or renewal of any commercial paper, instrument, account,
General Intangible, document or guaranty at any time held by Coast on which
Borrower is or may in any way be liable, and notice of any action taken by
Coast, unless expressly required by this Agreement.

     11.9  No Liability for Ordinary Negligence. Neither Coast, nor any of its
directors, officers, employees, agents, attorneys or any other Person affiliated
with or representing Coast shall be liable for any claims, demands, losses or
damages, of any kind whatsoever, made, claimed, incurred or suffered by Borrower
or any other party through the ordinary negligence of Coast, or any of its
directors, officers, employees, agents, attorneys or any other Person affiliated
with or representing Coast, but nothing herein shall relieve Coast from
liability for its own gross negligence or willful misconduct.

     11.10 Amendment. The terms and provisions of this Agreement may not be
waived or amended, except in a writing executed by Borrower and a duly
authorized officer of Coast.

     11.11 Time of Essence. Time is of the essence in the performance by
Borrower of each and every obligation under this Agreement.

     11.12 Attorneys' Fees, Costs and Charges. Borrower shall reimburse Coast
for all reasonable attorneys' fees (including attorneys' fees and expenses
incurred pursuant to bankruptcy) and all filing, recording, search, title
insurance, appraisal, audit, and other costs incurred by Coast, pursuant to, or
in connection with, or relating to this Agreement (whether or not a lawsuit is
filed), including, but not limited to, any attorneys' fees and costs (including
attorneys' fees and expenses incurred pursuant to bankruptcy) Coast incurs in
order to do the following: prepare and negotiate this Agreement and the
documents relating to this Agreement; obtain legal advice in connection with
this Agreement or Borrower; enforce, or seek to enforce, any of its rights;
prosecute actions against, or defend actions by, Account Debtors; commence,
intervene in, or defend any action or proceeding; initiate any complaint to be
relieved of the automatic stay in bankruptcy; file or prosecute any probate
claim, bankruptcy claim, third-party claim, or other claim; examine, audit,
copy, and inspect any of the Collateral or any of Borrower's books and records;
protect, obtain possession of, lease, dispose of, or otherwise enforce Coast's
security interest in, the Collateral; and otherwise represent Coast in any
litigation relating to Borrower. If either Coast or Borrower files any lawsuit
against the other predicated on a breach of this Agreement, the prevailing party
in such action shall be entitled to recover its costs and attorneys' fees
(including

                                       19
<PAGE>

Coast Business Credit                                Loan and Security Agreement
--------------------------------------------------------------------------------

attorneys' fees and expenses incurred pursuant to bankruptcy), including (but
not limited to) attorneys' fees and costs incurred in the enforcement of,
execution upon or defense of any order, decree, award or judgment. Borrower
shall also pay Coast's standard charges for returned checks and for wire
transfers, in effect from time to time. All attorneys' fees, costs and charges
(including attorneys' fees and expenses incurred pursuant to bankruptcy) and
other fees, costs and charges to which Coast may be entitled pursuant to this
Agreement may be charged by Coast to Borrower's loan account and shall
thereafter bear interest at the same rate as the Receivable Loans.

     11.13  Benefit of Agreement. The provisions of this Agreement shall be
binding upon and inure to the benefit of the respective successors, assigns,
heirs, beneficiaries and representatives of Borrower and Coast; provided,
however, that Borrower may not assign or transfer any of its rights under this
Agreement without the prior written consent of Coast, and any prohibited
assignment shall be void. No consent by Coast to any assignment shall release
Borrower from its liability for the Obligations. Coast may assign its rights and
delegate its duties hereunder without the consent of Borrower. Coast reserves
the right to syndicate all or a portion of the transaction created herein or
sell, assign, transfer, negotiate, or grant participations in all or any part
of, or any interest in Coast's rights and benefits hereunder. In connection with
any such syndication, assignment or participation, Coast may disclose all
documents and information which Coast now or hereafter may disclose all
documents and information which Coast now or hereafter may have relating to
Borrower or Borrower's business, provided that the recipient of the information
agrees, in writing, to keep such information confidential. To the extent that
Coast assigns its rights and obligations hereunder to a third Person, Coast
thereafter shall be released from such assigned obligations to Borrower to the
extent that such obligations are to be performed after such assignment.

     11.14  Publicity. Subject to Borrower's written consent not to be
unreasonably withheld, Coast is hereby authorized, at its expense, to issue
appropriate press releases and to cause a tombstone to be published announcing
the consummation of this transaction and the aggregate amount thereof.

     11.15  Paragraph Headings; Construction. Paragraph headings are only used
in this Agreement for convenience. Borrower and Coast acknowledge that the
headings may not describe completely the subject matter of the applicable
paragraph, and the headings shall not be used in any manner to construe, limit,
define or interpret any term or provision of this Agreement. The term
"including", whenever used in this Agreement, shall mean "including (but not
limited to)". This Agreement has been fully reviewed and negotiated between the
parties and no uncertainty or ambiguity in any term or provision of this
Agreement shall be construed strictly against Coast or Borrower under any rule
of construction or otherwise.

     11.16  Governing Law; Jurisdiction; Venue This Agreement and all acts and
transactions hereunder and all rights and obligations of Coast and Borrower
shall be governed by the internal laws of the State of California, without
regard to its conflicts of law principles. As a material part of the
consideration to Coast to enter into this Agreement, Borrower (a) agrees that
all actions and proceedings relating directly or indirectly to this Agreement
shall, at Coast's option, be litigated in courts located within California, and
that the exclusive venue therefor shall be Los Angeles County; (b) consents to
the jurisdiction and venue of any such court and consents to service of process
in any such action or proceeding by personal delivery or any other method
permitted by law; and (c) waives any and all rights Borrower may have to object
to the jurisdiction of any such court, or to transfer or change the venue of any
such action or proceeding.

     11.17  Mutual Waiver of Jury Trial BORROWER AND COAST EACH HEREBY WAIVE THE
RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, ARISING OUT OF,
OR IN ANY WAY RELATING TO, THIS AGREEMENT OR ANY OTHER PRESENT OR FUTURE
INSTRUMENT OR AGREEMENT BETWEEN COAST AND BORROWER, OR ANY CONDUCT, ACTS OR
OMISSIONS OF COAST OR BORROWER OR ANY OF THEIR DIRECTORS, OFFICERS, EMPLOYEES,
AGENTS, ATTORNEYS OR ANY OTHER PERSONS AFFILIATED WITH COAST OR BORROWER, IN ALL
OF THE FOREGOING CASES, WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE.

                                       20
<PAGE>

Coast Business Credit                                Loan and Security Agreement
--------------------------------------------------------------------------------

                                        BORROWER:

                                        Technical Communications Corporation


                                        By /s/ Carl H. Guild, Jr.
                                          ------------------------------------
                                           President or Vice President



                                        COAST:

                                        COAST BUSINESS CREDIT,
                                        a division of Southern Pacific Bank


                                        By /s/ Richard Banovitz
                                          ------------------------------------
                                        Title: V P Underwriting
                                              --------------------------------

                                       21
<PAGE>

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

Coast

                                  SCHEDULE TO
                          LOAN AND SECURITY AGREEMENT

Borrower:   Technical Communications Corporation

Address:    100 Domino Drive
            Concord, Massachusetts 01742

Date:       July 31, 2000

This Schedule forms an integral part of the Loan and Security Agreement between
Coast Business Credit, a division of Southern Pacific Bank, and the above-
borrower of even date.


<TABLE>
<CAPTION>
=======================================================================================================================

SECTION 2.  CREDIT FACILITIES
<S>                                   <C>
  Section 2.1 -  Credit Limit:        Loans in a total amount at any time outstanding to Borrower and to the
                                      Subsidiaries not to exceed the lesser of a total of Five Million Dollars
                                      ($5,000,000) at any one time outstanding (the "Maximum Dollar Amount"), or
                                      the sum of (a) and (b) below:

                                      (a)  Receivable Loans in an amount not to exceed 85%/1/ of the amount of
                                           Borrower's Eligible Receivables (as defined in Section 1 of the
                                           Agreement), plus
                                                       ----

                                      (b)  Inventory Loans in an amount not to exceed the lesser of:

                                           (1)  10% as to raw material, 20% as to sub-assemblies, 15% as to general
                                                dynamics and 15% as to integrated circuits, of the value of Borrower's
                                                Eligible Inventory (as defined in Section 1 of the Agreement,
                                                calculated at the lower of cost or market value and determined on a
                                                first in, first out basis), or

                                           (2)  Five Hundred Thousand Dollars ($500,000).

  Section 2.2 -  Letter of Credit          One Million Dollars ($1,000,000)
                 Sublimit:
</TABLE>

_________________________
/1/  If dilution of the accounts, as determined by Coast is 5% or more, the
advance rate shall be reduced to not exceed 80%.

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<CAPTION>
===================================================================================================================

SECTION 3 - INTEREST AND FEES
<S>                                   <C>
 Section 3.1 -   Interest Rate:       A rate equal to the Prime Rate plus 0.50% per annum, calculated on the
                                      basis of a 360-day year for the actual number of days elapsed.  The
                                      interest rate applicable to all Loans shall be adjusted monthly effective
                                      as of the first day of each month, and the interest to be charged for each
                                      month shall be based on the highest Prime Rate in effect during said
                                      month, but in no event shall the rate of interest charged on any Loans in
                                      any month be less than 9% per annum.

 Section 3.1 -   Minimum              $N.A. per month.
                 Monthly
                 Interest:
 Section 3.2 -   Loan Fee:            0.50% of the Maximum Dollar Amount due on the Closing Date, 0.50% of the
                                      Maximum Dollar Amount due on the first day of the second year of this
                                      Agreement and 0.25% of the Maximum Dollar Amount due on the first day of
                                      the third year of this Agreement.  All fees will be fully earned on the
                                      Closing Date and will be non refundable.

 Section 3.2 -   Facility Fee:        $5,000, per quarter, payable on the Closing Date (prorated for any partial
                                      quarter at the beginning of the term of this Agreement) and continuing on
                                      the first day of each quarter thereafter.

 Section 3.2 -   Letter of Credit     0.50% of all outstanding Letters of Credit per calendar month, plus bank
                 Fees:                charges and fees.

 Section 3.2 -   Unused Line          With respect to each fiscal month, or portion thereof during the term of
                 Fee:                 this Agreement, Borrower shall unconditionally pay to Coast a fee equal to
                                      0.75% per annum of the difference between the Maximum Dollar Amount and
                                      the average daily outstanding balance of the Loans during such month, or
                                      portion thereof ("Unused Line Fee"), which fee shall be calculated and
                                                        ---------------
                                      payable monthly, in arrears, and shall be due and payable, commencing on
                                      the first Business Day of the Borrower's first month following the Closing
                                      Date and continuing on the first Business Day of each month thereafter.

 Section 9.1 -   Renewal Fee:         0.50% of the Maximum Dollar Amount beginning in year 4.

 Section 9.2 -   Early                An amount equal to four percent (4%) of the Maximum Dollar Amount (as
                 Termination          defined in the Schedule), if termination occurs on or before the first
                 Fee:                 anniversary of the effective date of this Agreement; three percent (3%) of
                                      the Maximum Dollar Amount, if termination occurs after the first
                                      anniversary and on or before the second anniversary of the effective date
                                      of this Agreement; and two percent (2%) of the Maximum Dollar Amount, if
                                      termination occurs at any time after the second anniversary of the
                                      effective date of this Agreement.

===================================================================================================================
</TABLE>

SECTION 5 - CONDITIONS PRECEDENT

                                      S-2
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===========================================================================================================================

<S>                                   <C>
  Section 5.2 -   Minimum             $500,000 at funding
                  Availability:

  Section 5.14 -  Other               1.  Secured Continuing Guaranty of TCC Investment Corporation and TCC
                  Documents and           Foreign Sales Corporation;
                  Agreements:         2.  UCC-1 financing statements, fixture filings and termination statements;
                                      3.  Security Agreements (including those covering copyrights, patents and
                                          trademarks); and
                                      4.  Such other documents as Coast may request.

  Section 5.15 -  Other               1.  Borrower shall have no accounts payable more than 90 days past due as
                  Conditions:             of the Closing Date;
                                      2.  All taxes shall be current;
                                      3.  Coast shall have a perfected first priority security interest on all
                                          assets, tangible and intangible, including, without limitation, all
                                          intellectual property (except for Permitted Liens).  All copyrights and
                                          copyrightable material shall be registered with the United States
                                          Copyright Office with first priority liens granted to Coast;
                                      4.  All collections shall be remitted through a lockbox approved by Coast.
                                          All bank accounts shall be subject to a control agreement in favor of
                                          Coast;
                                      5.  Coast to be named as a loss payee for the Reliance Insurance Group
                                          policy;
                                      6.  The Reliance Insurance Group Credit Insurance Policy is to be amended
                                          to remove exceptions for bankruptcy/insolvency and to otherwise permit the
                                          assignment of the policy to Coast, all in form acceptable to Coast in its
                                          discretion;
                                      7.  All licenses of Borrower shall be assigned to Coast;
                                      8.  Borrower shall have provided to Coast a letter stating the broker fee
                                          due in connection with the Coast lending transaction with an
                                          acknowledgment that Borrower is solely responsible for paying such fee;
                                      9.  Borrower shall have not less than $2 million in cash balances in its
                                          bank and brokerage accounts; and
                                      10. Borrower shall have a Tangible Net Worth of not less than $6,250,000.

===========================================================================================================================
</TABLE>

SECTION 6 - REPRESENTATIONS, WARRANTIES AND COVENANTS

  Section 6.2 -   Prior Names of      None.
                  Borrower:

  Section 6.2 -   Prior Trade         None.
                  Names of
                  Borrower:

  Section 6.2 -   Existing Trade      None.
                  Names of
                  Borrower:

  Section 6.3 -   Other Locations     None.
                  and Addresses:

                                      S-3
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<TABLE>
<S>                                  <C>

                  and Addresses:

  Section 6.10 -  Material           None.
                  Adverse
                  Litigation:

  Section 6.10 -  Future Claims      Borrower will promptly inform Coast in writing of any claim, proceeding,
                  and Litigation:    litigation or investigation in the future threatened or instituted by or
                                     against Borrower involving any single claim of Fifty Thousand Dollars
                                     ($50,000) or more, or involving One Hundred Thousand Dollars ($100,000) or
                                     more in the aggregate.

==================================================================================================================
</TABLE>

                                      S-4
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SECTION 8 - ADDITIONAL DUTIES OF BORROWER

<TABLE>
<S>                                <C>
  Section 8.1 -  Other             1.   Borrower shall at all times have a Tangible Net Worth of not less than
                 Provisions and         $6,250,000 from the Closing Date through and including September 29, 2000,
                 Covenants:             $6,500,000 from September 30, 2000 through and including December 30,
                                        2000, $6,800,000 beginning December 31, 2000 and thereafter, increasing
                                        quarterly by 70% of Borrower's net income based on a trailing six months.
                                        In no event shall such increase exceed 70% of Borrower's net income on an
                                        annualized basis during any fiscal year of Borrower;
                                   2.   Borrower shall pay all taxes when due;
                                   3.   Each month, Borrower shall advise Coast in writing of all copyrights
                                        and copyrightable material which has not been registered with the United
                                        States Copyright Office and of all modifications to all then existing
                                        copyrights;
                                   4.   The Receivable owing from the Maryland Procurement Office ("MPO") will
                                        only be considered for eligibility if the following conditions have been
                                        satisfied: (a) Borrower provides Coast with an affidavit executed by
                                        Borrower's CEO, Carl Guild, Jr., insuring and certifying to the
                                        authenticity of all information submitted to Coast that relates to the MPO
                                        Receivable, and (b) Borrower provides Coast with the following information
                                        regarding its relationship with MPO: (i) the date the relationship with
                                        MPO initiated; (ii) certain information relating to the relationship
                                        between Borrower and MPO including the length of each contract and the
                                        names and telephone numbers of MPO contacts; (iii) certain information
                                        relating to the performance of existing contracts including invoice
                                        numbers, invoice dates, job or "task" numbers, invoice types (i.e. time
                                        and material), invoice amounts, corresponding payment amounts and dates
                                        and unpaid invoice balances, and (iv) a 12-month payment history comprise
                                        of daily shipments, invoice dates and amounts and corresponding payment
                                        dates and amounts; and (v) all other information as Coast may reasonably
                                        request from time to time.
                                   5.   Borrower shall at all times maintain cash balances of at least $2
                                        million.  If the cash balances fall below $2 million, the reporting
                                        criteria otherwise set forth in this Agreement may be modified at the
                                        option of Coast and the advance rates against Eligible Receivables and
                                        Inventory may be reduced at the discretion of Coast (such discretion to be
                                        exercised in Coast's reasonable business judgment).
                                   6.   Borrower agrees to cause all letters of credit in favor of Borrower to
                                        otherwise be assigned to Coast with Coast named as the beneficiary thereof.

  Section 8.2 -  Insurance:        Subject to the limitations set forth in Section 8.2 of the Agreement,
                                   Coast shall release to Borrower insurance proceeds with respect to
                                   Equipment totaling less than Fifty Thousand Dollars ($50,000).
</TABLE>

                                      S-5
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<TABLE>
<S>                                <C>
  Section 8.3 -  Reporting:        Borrower shall provide Coast with the following:

                                   1.   Monthly Receivable agings (including progress/milestone billing), aged
                                        by invoice date and by customer in alphabetical order, within five (5)
                                        days after the end of each month together with a monthly deferred revenue
                                        listing to be sorted by customer in alphabetical order.
                                   2.   Monthly accounts payable agings, aged by invoice date, and outstanding
                                        or held check registers within five (5) days after the end of each month.
                                   3.   Monthly perpetual inventory reports for the Inventory valued on a
                                        first-in, first-out basis at the lower of cost or market (in accordance
                                        with GAAP) or such other inventory reports as are reasonably requested by
                                        Coast, all within ten (10) days after the end of each month.
                                   4.   Monthly internally prepared financial statements and 10Q reports, as
                                        soon as available, and in any event within thirty (30) days after the end
                                        of each month.
                                   5.   Quarterly internally prepared financial statements, as soon as
                                        available, and in any event within forty-five (45) days after the end of
                                        each fiscal quarter of Borrower.
                                   6.   Quarterly customer lists, including customer name, address, and phone
                                        number.
                                   7.   Annual financial statements and 10K reports, as soon as available, and
                                        in any event within ninety (90) days following the end of Borrower's
                                        fiscal year, containing the unqualified opinion of, and certified by, an
                                        independent certified public accountant acceptable to Coast.

  Section 8.5    Negative          Two Hundred Thousand Dollars ($200,000).
                 Covenants
                 (Acquired
                 Assets):
</TABLE>

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

SECTION 9 - TERM

<TABLE>
<S>                                <C>
  Section 9.1 -  Maturity Date:    The last Business Day of the month three (3) years from the Closing Date,
                                   subject to automatic renewal as provided in Section 9.1 of the Agreement,
                                   and early termination as provided in Section 9.2 of the Agreement.
</TABLE>

                                      S-6
</TEXT>
</DOCUMENT>
