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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
 
                                   FORM 10-K
 
/X/     ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
                      EXCHANGE ACT OF 1934 [FEE REQUIRED]
 
                    FOR THE FISCAL YEAR ENDED JUNE 29, 1996
 
                                       OR
 
/ /   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
                     EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
 
          FOR THE TRANSITION PERIOD FROM ____________ TO ____________
 
                         COMMISSION FILE NUMBER 1-8703
 
                          WESTERN DIGITAL CORPORATION
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
 

<TABLE>
<S>                                           <C>
                   DELAWARE                                     95-2647125
       (STATE OR OTHER JURISDICTION OF                       (I.R.S. EMPLOYER
        INCORPORATION OR ORGANIZATION)                     IDENTIFICATION NO.)
           8105 IRVINE CENTER DRIVE
              IRVINE, CALIFORNIA                                  92618
   (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)                     (ZIP CODE)
</TABLE>

 
       REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (714) 932-5000
 
          SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
 

<TABLE>
<CAPTION>
                                                          NAME OF EACH EXCHANGE
             TITLE OF EACH CLASS:                          ON WHICH REGISTERED:
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<S>                                           <C>
         COMMON STOCK, $.10 PAR VALUE                    NEW YORK STOCK EXCHANGE
      RIGHTS TO PURCHASE SERIES A JUNIOR                 NEW YORK STOCK EXCHANGE
        PARTICIPATING PREFERRED STOCK
</TABLE>

 
        SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE
 
     Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES /X/  NO / /
 
     Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / /
 
     As of August 1, 1996, the aggregate market value of the voting stock of the
Registrant held by non-affiliates of the Registrant was $1.3 billion.
 
     As of August 1, 1996, the number of outstanding shares of Common Stock, par
value $.10 per share, of the Registrant was 43,644,345.
 
     Information required by Part III is incorporated by reference to portions
of the Registrant's Proxy Statement for the 1996 Annual Meeting of Shareholders,
which will be filed with the Securities and Exchange Commission within 120 days
after the close of the 1996 fiscal year.
 
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<PAGE>   2
 
                          WESTERN DIGITAL CORPORATION
 
                      INDEX TO ANNUAL REPORT ON FORM 10-K
 
                    FOR THE FISCAL YEAR ENDED JUNE 29, 1996
 

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<C>         <S>                                                                           <C>

            PART I

 Item 1.    Business....................................................................    3

 Item 2.    Properties..................................................................    8

 Item 3.    Legal Proceedings...........................................................    9

 Item 4.    Submission of Matters to a Vote of Security Holders.........................    9

            PART II

 Item 5.    Market for Registrant's Common Equity and Related Stockholder Matters.......   11

 Item 6.    Selected Financial Data.....................................................   11

 Item 7.    Management's Discussion and Analysis of Financial Condition and Results of
            Operations..................................................................   11

 Item 8.    Financial Statements and Supplementary Data.................................   15

 Item 9.    Changes in and Disagreements With Accountants on Accounting and Financial
            Disclosure..................................................................   31

            PART III

Item 10.    Directors and Executive Officers of the Registrant..........................   32

Item 11.    Executive Compensation......................................................   32

Item 12.    Security Ownership of Certain Beneficial Owners and Management..............   32

Item 13.    Certain Relationships and Related Transactions..............................   32

            PART IV

Item 14.    Exhibits, Financial Statement Schedules, and Reports on Form 8-K............   32
</TABLE>

 
                                        2

<PAGE>   3
 
     THE INFORMATION CONTAINED IN THIS REPORT INCLUDES FORWARD-LOOKING
STATEMENTS, WHICH ARE TYPICALLY IDENTIFIED BY THE WORDS "ANTICIPATES,"
"BELIEVES," "EXPECTS," "INTENDS," "FORECASTS," "PLANS," "FUTURE," "STRATEGY," OR
WORDS OF SIMILAR IMPORT. VARIOUS IMPORTANT FACTORS THAT COULD CAUSE ACTUAL
RESULTS TO DIFFER MATERIALLY FROM THOSE EXPRESSED IN THE FORWARD-LOOKING
STATEMENTS ARE IDENTIFIED BELOW IN PART I, ITEM 1 AND ITEM 3 AND PART II, ITEM 7
OF THIS REPORT.
 

                                     PART I
 

ITEM 1.  BUSINESS
 
GENERAL
 
     Western Digital Corporation (the "Company" or "Western Digital") currently
designs, manufactures and sells hard drives for the personal computer ("PC")
market. The Company is one of the three largest independent manufacturers of
hard drives. The Company's principal drive products are 3.5-inch form factor
hard drives for the desktop PC market with storage capacities from 850 megabytes
("MBs") to 3.1 gigabytes ("GBs"), including the Caviar AC33100, a 3.1 GB drive
which began initial volume shipments in August 1996. These hard drives utilize
the enhanced integrated drive electronics ("EIDE") interface. With the planned
introduction of product lines for the mobile and enterprise storage markets in
1997, the Company will design, manufacture and sell hard drives across the
entire spectrum of the hard drive market. The mobile products will use the
3.0-inch form factor. The first generation of enterprise storage products will
include 2.1 and 4.3 GB capacities and will use the 3.5-inch form factor and the
small computer system interface ("SCSI"). The initial enterprise storage
products have been designed to be used by workstations, LAN servers, multi-user
systems and high-end PCs.
 
     Until April 1996, the Company also designed and sold proprietary
semiconductors, some of which were used in the manufacture of hard drives. These
businesses (multimedia, high speed fiber-optic communication links and
input/output products), which were sold at various times during 1996, were
collectively referred to as the microcomputer products ("MCP") group and had
combined revenues of $70.1, $191.0 and $160.0 million in 1996, 1995, and 1994,
respectively. During the fourth quarter of 1996, all of the Company's revenues
were generated from hard drive product sales.
 
     Effective July 1, 1994, the Company changed its fiscal year end from June
30 to a 52 or 53-week year ending on the Saturday nearest June 30. Accordingly,
the 1996 and 1995 fiscal years ended on June 29 and July 1, respectively,
whereas the previous fiscal years ended on June 30.
 
     Unless otherwise indicated, references herein to specific years and
quarters are to the Company's fiscal years and fiscal quarters.
 
     The Company's principal executive offices are located at 8105 Irvine Center
Drive, Irvine, California 92618, and its telephone number is (714) 932-5000.
 
MARKETS
 
     Personal Computer. The market for PC EIDE hard drives is segmented by type
of computer (mobile or desktop), form factor (2.5-inch, 3.0-inch, 3.5-inch and
5.25-inch) and storage capacity (currently up to 3.1 GBs). The segment of the PC
market currently generating the largest requirements for EIDE hard drives is the
desktop segment which primarily uses 3.5-inch drives with capacities up to 3.1
GBs.
 
     The mobile market is currently dominated by the 2.5-inch form factor. The
new 3.0-inch form factor offers several advantages over the 2.5-inch form factor
including larger disk surface area, permitting higher capacity per platter, and
lower cost structure without any compromise in performance. The Company
anticipates that these advantages will enable the 3.0-inch form factor to be
successfully accepted into the mobile market.
 
                                        3

<PAGE>   4
 
     The hard drive market has been highly cyclical and characterized by
significant price erosion over the life of a product, periodic rapid price
declines due to industry over-capacity or other competitive factors,
technological changes and changing market requirements. In 1996, with the merger
of Seagate Technology, Inc. ("Seagate Technology") and Conner Peripherals, Inc.
("Conner"), the industry dynamics were changed by reducing the number of
competitors and significantly increasing the size of Seagate Technology. The
Company is unable to predict the effect, if any, that the merger will have on
this industry and/or on Western Digital.
 
     The rapid increase in PC performance and storage requirements and the need
for PC manufacturers to differentiate their products have increased the demand
for higher capacity hard drives. At the same time, intense price competition
among PC manufacturers requires that hard drive suppliers meet aggressive cost
targets in order to become high-volume suppliers. The Company's strategy in
response to these conditions is to increase market share by achieving volume
time-to-market leadership while minimizing its fixed cost structure and
maximizing the utilization of its assets. The Company attempts to implement this
strategy, in part, by capitalizing on its expertise in control and communication
electronics to deliver greater storage capacity per disk from components widely
available in the commercial market, such as disks and heads, and to provide a
high degree of commonality of component parts among its hard drive products.
 
     Enterprise Storage.  The market for SCSI hard drives is segmented by
workstations, LAN servers, multi-user systems and high-end PCs. The Company's
strategy to penetrate this market is to provide a competitive price and
performance solution to prospective customers. The initial products offered in
1997 will leverage technology and processes that are currently used by the
Company's 3.5-inch desktop product line.
 
PRODUCTS
 
     Revenues from hard drive products were $2.8, $1.9, and $1.4 billion for
1996, 1995 and 1994, respectively. Revenues from microcomputer products were
$70.1, $191.0 and $160.0 million for 1996, 1995 and 1994, respectively.
 
     Technology.  Hard drives are used to record, store and retrieve digital
data. They are faster than floppy disk, tape and optical disk drives and cost
less than semiconductor memory. Commonly quoted measures of hard drive
performance are storage capacity, average seek time (the average time to move
the heads from one track to another), data transfer rate (the rate at which data
is transferred between the drive and the host computer) and spindle rotational
speed.
 
     Product Offerings.  The Company's current line of hard drive products for
the personal computer market consists of the WD Caviar(R) family of low-profile
drives which includes 1-inch high, 3.5-inch form factor models for desktop
applications. In addition, the Company plans to begin shipping 3.0-inch form
factor models for mobile computer applications in 1997. Each of these drives
features CacheFlow(TM), the Company's proprietary adaptive disk caching system
which enhances the drive's read/write performance as measured by the rate at
which it can deliver data to or receive it from the computer. An additional
common feature is the Company's proprietary drive control and communication
electronic circuitry called Architecture III, which spans the Company's entire
3.5-inch WD Caviar product line. Architecture III features EIDE technology,
which provides the desktop marketplace the key attributes of the SCSI interface
while retaining the focus on ease-of-use, compatibility and overall lower cost
of connection advantages, all of which are the traditional strengths of
integrated drive electronics ("IDE"). The Company believes that the commonality
of control and communication electronics featured in all of the WD Caviar hard
drives facilitates customer qualification of successive product models, reduces
risk of inventory obsolescence, and allows the Company to place larger orders
for components, resulting in reduced component cost.
 
     In 1997, the Company plans to introduce a new line of 3.5-inch form factor,
low profile, SCSI hard drives for the enterprise storage market. The initial WD
Enterprise(TM) products will have formatted capacities of 2.1 GBs and 4.3 GBs,
rotational speed of 7,200 RPM, media data transfer rates of 17.5 MB per second,
and will support Ultra Fast and Ultra Fast Wide host transfers.
 
                                        4

<PAGE>   5
 
     The following table summarizes certain design and performance
characteristics and specifications of the Company's current hard drive products:
 

<TABLE>
<CAPTION>
                                                            AVERAGE
                                           FORMATTED      ACCESS TIME     NUMBER     NUMBER
                             DATE          CAPACITY         (MILLI-         OF         OF
       PRODUCT          FIRST SHIPPED     (MEGABYTES)      SECONDS)       DISKS      HEADS      INTERFACE
- ----------------------  --------------    -----------     -----------     ------     ------     ---------
<S>                     <C>               <C>             <C>             <C>        <C>        <C>
Desktop Products:
WD Caviar AC2850        December 1994          854            <10            2          4          EIDE
WD Caviar AC21000       June 1995            1,084            <11            2          4          EIDE
WD Caviar AC21200       December 1995        1,282            <10            2          4          EIDE
WD Caviar AC21600       March 1996           1,625            <12            2          4          EIDE
WD Caviar AC31600       June 1995            1,625            <10            3          6          EIDE
WD Caviar AC32100       March 1996           2,112            <12            3          5          EIDE
WD Caviar AC32500       March 1996           2,560            <12            3          6          EIDE
WD Caviar AC33100       August 1996          3,167            <12            3          6          EIDE
</TABLE>

 
SALES AND DISTRIBUTION
 
     The Company sells its products primarily to PC manufacturers and, to a
lesser extent, resellers and distributors through its worldwide direct sales
force. The Company's direct sales organization is structured so that each
customer is served by a single sales team. Each sales team is responsible for
marketing the Company's entire product line and providing timely feedback to
engineering regarding the customer's new product requirements. This structure
promotes early identification of and response to the customer's full range of
product needs. Later, in the production stage, the team focus enables the
Company to improve customer fulfillment and overall service. The Company's major
original equipment manufacturer ("OEM") customers include Apple Computer, AST
Research, Compaq Computer, Dell Computer, Digital Equipment Corporation,
Fujitsu, Gateway 2000, Hewlett-Packard, IBM, Intel, Micron Technology, NEC and
Siemens. While Western Digital believes its relationships with key customers
such as these are very good, the concentration of sales to a relatively small
number of major customers presents a business risk that loss of one or more
accounts could adversely affect the Company's operating results. During 1996 and
1995, sales to Gateway 2000 accounted for 11% of revenues. During 1994, sales to
Gateway 2000 and IBM accounted for 12% of revenues each.
 
     The Company also sells its products through its direct sales force to
selected resellers, which include major distributors, mass merchandisers and
value-added resellers. The Company's major distributor customers include
Decision Support Systems, Frank and Walter, Ingram Micro, Loeffelhardt, National
Computer Distributors, Supercom and Synnex. Major mass merchandiser customers
include Best Buy, Computer City, CompUSA, Egghead Software, Office Depot, Radio
Shack and Wal-Mart. In accordance with standard industry practice, the Company's
agreements with its resellers provide price protection for inventories held by
the resellers at the time of published list price reductions and, under certain
circumstances, stock rotation for slow-moving items. These agreements may be
terminated upon written notice by either party. In the event of termination, the
Company may be obligated to repurchase a certain portion of the resellers'
inventory.
 
     Western Digital maintains sales offices in the United States, Europe and
Asia. Technical support services are provided within the United States and
Europe. The Company's international sales, which include sales to foreign
subsidiaries of U.S. companies, represented 51%, 44%, and 43% of revenues for
1996, 1995 and 1994, respectively. Sales to international customers may be
subject to certain risks not normally encountered in domestic operations,
including exposure to tariffs, various trade regulations and fluctuations in
currency exchange rates.
 
     For information concerning sales by geographic region, see Note 7 of Notes
to Consolidated Financial Statements.
 
                                        5

<PAGE>   6
 
SERVICE AND WARRANTY
 
     Western Digital warrants its newly manufactured desktop and mobile products
against defects in materials and workmanship for a period of three years. The
Company's enterprise storage products will provide similar warranties for up to
five years. The Company refurbishes or repairs its products at an in-house
service facility located in Singapore and at a third-party return facility
located in Germany.
 
RESEARCH AND DEVELOPMENT
 
     Research and development expenses totaled $150.1, $130.8 and $112.8 million
in 1996, 1995 and 1994, respectively. The Company devotes substantial resources
to research and development in order to develop new products and improve
existing products. The Company focuses its engineering efforts to coordinate its
product design and manufacturing processes in order to bring its products to
market in a cost-effective and timely manner. The availability of research and
development funds depends upon the Company's revenues and profitability.
Reductions in such expenditures could impair the Company's ability to innovate
and compete.
 
     The Company's current product line primarily uses thin film head
technology. Over the next several years, as storage capacity requirements
increase, the Company expects that it will be required to replace thin film
heads with magnetoresistive ("MR") heads. There can be no assurance that the
Company will be successful in the transition from thin film heads to MR heads.
 
     The market for the Company's products is subject to rapid technological
change and short product life cycles. To remain competitive, the Company must
anticipate the needs of the market and successfully develop and introduce new
products in a timely fashion. If not carefully planned and executed, the
introduction of new products may adversely affect sales of existing products and
increase risk of inventory obsolescence. In addition, new products typically
have lower initial manufacturing yields and higher initial component costs than
more mature products.
 
MANUFACTURING
 
     The Company produces hard drives in its plants in Singapore and Malaysia.
Western Digital is currently expanding its printed circuit board assembly and
hard drive manufacturing capabilities in Malaysia and has a new building in
Singapore which will be used to produce hard drives for the enterprise storage
market beginning in 1997. These plants have complete responsibility for all hard
drives in volume production, including manufacturing, purchasing, inventory
management, assembly, test, quality assurance and shipping of finished units.
The Company purchases most of the standard mechanical components and micro
controllers for its hard drives from external suppliers, although the Company
has a media manufacturing facility which supplies a portion of its media
requirements.
 
     The Company experiences fluctuations in manufacturing yields that can
materially affect the Company's operations, particularly in the start-up phase
of new products or new manufacturing processes. With the continued pressures to
shorten the time required to introduce new products, the Company must accelerate
production learning curves to shorten the time to achieve acceptable
manufacturing yields and costs.
 
     Because the Company has manufacturing facilities located in Singapore and
Malaysia, the Company is subject to certain foreign manufacturing risks such as
changes in government policies, high employee turnover, political risk,
transportation delays, tariffs, fluctuations in foreign exchange rates and
import, export, exchange and tax controls and reallocations. To date, exposure
to such risks has not had a material effect on the Company's business,
consolidated financial position or results of operations.
 
MATERIALS AND SUPPLIES
 
     The principal components used in the manufacture of the Company's hard
drives are magnetic heads (both thin film and metal-in-gap ("MIG")) and related
head stack assemblies, media, micro controllers, spindle motors and mechanical
parts used in the head-disk assembly. The Company also uses standard
semiconductor components such as logic, memory and microprocessor devices
obtained from other
 
                                        6

<PAGE>   7
 
manufacturers as well as proprietary semiconductor circuits manufactured for the
Company and a wide variety of other parts, including connectors, cables and
switches.
 
     Substantially all of the Company's thin film head requirements are
purchased from Read-Rite, SAE and AMC Corporation. The Company also uses MIG
heads, which are supplied by several vendors. The Company has a media
manufacturing facility which supplies a portion of its media requirements. Other
media requirements are purchased through several outside vendors including Komag
Inc., Trace Storage, Akashic and Showa Denko. The Company has established an
agreement with SGS Thompson to purchase finished integrated circuits ("IC")
which were previously manufactured internally.
 
     A number of the components used by the Company are available from a single
or limited number of outside suppliers. Some of these materials may periodically
be in short supply, and the Company has, on occasion, experienced temporary
delays or increased costs in obtaining these materials. Because the Company is
less vertically integrated than its competitors, an extended shortage of
required materials and supplies could have a more severe adverse effect on
Western Digital's revenue and earnings as compared to its competition. The
Company must allow for significant lead times when procuring certain materials
and supplies. The Company has more than one available source of supply for most
of its required materials. Where there is only one source of supply, the Company
has entered into close technical and manufacturing relationships, has access to
more than one manufacturing location in most instances, and believes that a
second source could be obtained over a period of time. However, no assurance can
be given that the Company's results of operations would not be adversely
affected until a new source could be secured.
 
COMPETITION
 
     The computing industry is intensely competitive and has been characterized
by significant price erosion over the life of a product, periodic rapid price
declines due to industry over-capacity or other competitive factors,
technological changes, changing market requirements, occasional shortages of
materials, dependence upon a limited number of vendors for certain components,
dependence upon highly skilled engineering and other personnel, and significant
expenditures for product development. The hard drive market in particular has
been subject to recurring periods of severe price competition. The Company's
principal competitors are Quantum Corporation ("Quantum") and Seagate
Technology, and large computer manufacturers such as IBM that manufacture drives
for use in their own products and for sale to others. In February 1996, Seagate
Technology merged with Conner, formerly one of the Company's principal
competitors. This merger changed the industry dynamics by reducing the number of
competitors and by significantly increasing the size of Seagate Technology. The
Company is unable to predict the effect, if any, that the merger will have on
Western Digital.
 
     In general, the unit price for a given product in all of the Company's
markets decreases over time as increases in industry supply and cost reductions
occur and as technological advancements are achieved. Cost reductions are
primarily achieved as volume efficiencies are realized, component cost
reductions are achieved, experience is gained in manufacturing the product and
design enhancements are made. Competitive pressures and customer expectations
result in these cost improvements being passed along as reductions in selling
prices. At times, the rate of general price decline is accelerated when some
competitors lower prices to absorb excess capacity, to liquidate excess
inventories and/or to gain market share.
 
     The Company also competes with companies offering products based on
alternative data storage and retrieval technologies. Technological advances in
magnetic, optical, flash or other technologies could result in the introduction
of competitive products with performance superior to and prices lower than the
Company's products, which could adversely affect the Company's results of
operations.
 
     The Company believes that proprietary hard drive, semiconductor, and
board-level design technology, close technical relationships with key OEM
customers and vendors, diverse product lines, competitive pricing, adequate
capital resources and worldwide low cost/high volume manufacturing capabilities
are key factors for successfully competing in its market areas.
 
                                        7

<PAGE>   8
 
BACKLOG
 
     At June 29, 1996, the Company's backlog, consisting of orders scheduled for
delivery within the next twelve months, aggregated approximately $479 million,
compared with a backlog at July 1, 1995 which aggregated approximately $426
million. Historically, a substantial portion of the Company's orders has been
for shipments within 30 to 60 days of the placement of the order. The Company's
sales are made under contracts and purchase orders that, pursuant to industry
practice, may be canceled with relatively short notice to the Company, subject
to payment of certain costs, or modified by customers to provide for delivery at
a later date. Also, certain of the Company's sales to OEMs are made under
"just-in-time" delivery contracts that do not generally require firm order
commitments by the customer. Therefore, backlog information as of the end of a
particular period is not necessarily indicative of future levels of the
Company's revenue and profit.
 
PATENTS AND LICENSES
 
     The Company owns numerous patents and has many patent applications in
process. The Company believes that, although its patents and applications have
significant value, the successful manufacturing and marketing of its products
depends primarily upon the technical competence and creative ability of its
personnel rather than on patent protection. See also "Legal Proceedings."
 
     The Company has cross-licensing agreements with IBM and Seagate Technology,
which grant the Company licenses for its products under patents owned by these
companies, and which grant each of these companies a license for its products
under patents owned by the Company. The Company pays periodic royalties under
the IBM cross-license agreement. Several patent holders have made assertions
that the Company needs a license under certain patents. The Company conducts
ongoing investigations into such assertions and presently believes that any
licenses ultimately determined to be required could be obtained on commercially
reasonable terms. However, there is no assurance that such licenses are
presently obtainable, or if later determined to be required, could be obtained.
See also "Legal Proceedings."
 
EMPLOYEES
 
     As of June 29, 1996, the Company employed a total of 9,628 full-time
employees worldwide. The Company employed 1,776 employees in the United States,
of whom 725, 487 and 564 were engaged in engineering, sales and administration,
and manufacturing, respectively. The Company employed 2,892 employees at its
hard drive manufacturing facility in Malaysia, 4,837 at its hard drive
manufacturing facilities in Singapore, and 123 at its international sales
offices.
 
     Many of the Company's employees are highly skilled, and the Company's
continued success depends in part upon the ability to attract and retain such
employees. In an effort to attract and retain such employees, the Company
continues to offer employee benefit programs which it believes are at least
equivalent to those offered by its competitors. Despite these programs, the
Company has, along with most of its competitors, experienced difficulty at times
in hiring and retaining certain skilled personnel. In critical areas, the
Company has utilized consultants and contract personnel to fill these needs
until full-time employees could be recruited. The Company has never experienced
a work stoppage, none of its domestic employees are represented by a labor
organization, and the Company considers its employee relations to be good.
 

I
TEM 2.  PROPERTIES
 
     The Company's headquarters are located in a 358,000 square foot building in
Irvine, California. This building houses management, research and development,
administrative and sales personnel and is leased to the Company. The Company has
two hard drive manufacturing facilities located in Singapore. The first
Singapore facility, which is used to produce hard drives for the personal
computer market, is leased to the Company and consists of several buildings
totaling approximately 297,000 square feet. The second Singapore facility is
approximately 90,000 square feet and will be used to produce hard drives for the
enterprise storage products market beginning in 1997. This facility is currently
leased, but the Company has entered into an agreement to purchase the facility.
Western Digital also owns an 88,000 square foot hard drive manufacturing
facility located in Malaysia. The Company recently acquired an adjacent parcel
of land in Malaysia and is in
 
                                        8

<PAGE>   9
 
the process of constructing a building totaling approximately 250,000 square
feet to expand its printed circuit board assembly and hard drive manufacturing
facility. The Company's media processing facilities total approximately 100,000
square feet and are located on leased property in Santa Clara, California. In
addition, the Company leases facilities in San Jose, California and in
Rochester, Minnesota for research and development activities. The leases
referenced above expire at various times through 2006.
 
     The Company also leases office space in various other locations throughout
the world primarily for sales and technical support. The Company's present
facilities are adequate for its current needs, although the process of upgrading
its facilities to meet technological and market requirements is expected to
continue.
 

ITEM 3.  LEGAL PROCEEDINGS
 
     The following discussion contains forward-looking statements relating to
the Company's legal proceedings described below. Litigation is inherently
uncertain and, accordingly, actual results could differ materially from those
expressed in the forward-looking statements.
 
     The Company was sued in March 1993 in the United States District Court for
the Northern District of California by Conner. The suit alleged that the Company
infringed five Conner patents and sought damages in an unspecified amount and
injunctive relief. The Company also filed a suit alleging that Conner infringed
two of the Company's patents. On February 20, 1996, the lawsuits were dismissed
with prejudice by mutual agreement of the parties.
 
     The Company was sued in December 1994 by Rodime plc ("Rodime") in the
United States District Court for the Central District of California. The suit
alleged that the Company infringed one of Rodime's patents which relates to
3.5-inch hard drives and sought damages in an unspecified amount. In April 1994,
in an action for declaratory judgment involving this patent which was brought by
Quantum against Rodime, the United States District Court for the District of
Minnesota entered a summary judgment in Quantum's favor, ruling that claims of
the Rodime patent were invalid because of impermissible broadening in
reexamination proceedings. This summary judgment was affirmed on September 22,
1995, by the United States Court of Appeals for the Federal Circuit. On April
29, 1996, The United States Supreme Court declined to review this decision. This
ruling, now final, concluded Quantum's action against Rodime. Subsequently, on
May 3, 1996, Rodime dismissed its claim against the Company without prejudice.
 
     The Company was sued by Amstrad plc ("Amstrad") in December 1992 in Orange
County Superior Court. The complaint alleges that hard drives supplied by the
Company in 1988 and 1989 were defective and caused damages to Amstrad of $186.0
million for out-of-pocket expenses, lost profits, injury to Amstrad's reputation
and loss of goodwill. The Company filed a counterclaim for $3.0 million in
actual damages plus exemplary damages in an unspecified amount. Trial in the
matter is currently scheduled for February 1997. The Company believes that it
has meritorious defenses to Amstrad's claims and intends to vigorously defend
itself against the Amstrad claims and to press its claims against Amstrad in
this action. Although the Company believes the final disposition of this matter
will not have a material adverse effect on the Company's financial position or
results of operations, if Amstrad were to prevail on its liability claims, a
judgment in a material amount could be awarded against the Company.
 
     The Company is also subject to other legal proceedings and claims which
arise in the ordinary course of its business. Although occasional adverse
decisions (or settlements) may occur, the Company believes that the final
disposition of such matters will not have a material adverse effect on the
financial position or results of operations of the Company.
 

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
     None.
 
EXECUTIVE OFFICERS OF THE REGISTRANT
 
     The names, ages and positions of all the executive officers of the Company
as of August 1996 are listed below, followed by a brief account of their
business experience during the past five years. Executive officers are
 
                                        9

<PAGE>   10
 
normally appointed annually by the Board of Directors at a meeting of the
directors immediately following the Annual Meeting of Shareholders. There are no
family relationships among these officers nor any arrangements or understandings
between any officer and any other person pursuant to which an officer was
selected. None of these officers has been involved in any court or
administrative proceeding within the past five years adversely reflecting on his
or her ability or integrity.
 

<TABLE>
<CAPTION>
         NAME               AGE                               POSITION
- ----------------------      ---      ----------------------------------------------------------
<S>                         <C>      <C>
Charles A. Haggerty         55       Chairman of the Board, President and Chief Executive
                                     Officer
Kathryn A. Braun            45       Executive Vice President, Personal Storage Group
Marc H. Nussbaum            40       Senior Vice President, Engineering, Personal Storage Group
David W. Schafer            44       Senior Vice President, Worldwide Sales
Duston M. Williams          38       Senior Vice President and Chief Financial Officer
Michael A. Cornelius        54       Vice President, Law and Administration, and Secretary
Scott T. Hughes             33       Vice President, Human Resources
Steven M. Slavin            45       Vice President, Taxes and Treasurer
</TABLE>

 
     Messrs. Nussbaum, Schafer, Slavin and Williams and Ms. Braun have been
employed by the Company for more than five years and have served in various
executive capacities with the Company before being appointed to their present
positions.
 
     Mr. Haggerty joined the Company as President in June 1992 and has been a
director since January 1993. He assumed the additional positions of Chairman and
Chief Executive Officer on June 30, 1993. Prior to joining the Company, he spent
his 28-year business career in various positions at IBM. In 1987, he became
IBM's Vice President of worldwide operations for the AS/400. He then served as
Vice President/General Manager, low-end mass-storage products responsible for
operations in the United States, Japan and the United Kingdom. Immediately prior
to joining the Company, he held the position of Vice President of IBM's
worldwide OEM storage marketing.
 
     Mr. Cornelius joined the Company in January 1995. Prior to joining the
Company, he served in various positions with U.S. affiliates of Nissan Motor
Company, Inc. for 19 years. From 1990 to 1992, he served as Nissan North
America's Vice President of Legal and Public Affairs. Immediately prior to
joining the Company, he held the position of Vice President of Corporate Affairs
for Nissan North America.
 
     Mr. Hughes joined the Company in July 1993 as Vice President, Human
Resources before becoming an elected officer of the Company in July 1994. He
served as Director of Human Resources of Quantum from 1992 to 1993. From 1990 to
1992, he served in various capacities with Western Digital, including acting
Vice President, Human Resources.
 
                                       10

<PAGE>   11
 

                                    PART II
 

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
 
     Western Digital's common stock is listed on the New York Stock Exchange
("NYSE"). The approximate number of holders of record of common stock of the
Company as of August 1, 1996 was 3,400.
 
     The Company has not paid any cash dividends on its common stock and does
not intend to pay any cash dividends in the foreseeable future.
 
     The high and low sales prices of the Company's common stock, as reported by
the NYSE, for each quarter of 1996 and 1995 are as follows:
 

<TABLE>
<CAPTION>
                                                  FIRST      SECOND      THIRD      FOURTH
                                                  -----      ------      -----      ------
        <S>                                       <C>        <C>         <C>        <C>
        1996
          High..................................  $22 1/8    $18 7/8     $21 3/8    $29
          Low...................................   15 1/8     14 3/8      16 1/8     18 7/8
        1995
          High..................................  $16 3/8    $19         $19 3/8    $21 3/4
          Low...................................   12 3/4     13 3/4      13 1/8     13 3/8
</TABLE>

 

ITEM 6.  SELECTED FINANCIAL DATA
 
FINANCIAL HIGHLIGHTS
 

<TABLE>
<CAPTION>
                                                                   YEARS ENDED
                                          ------------------------------------------------------------
        (IN MILLIONS, EXCEPT PER          JUNE 29,     JULY 1,      JUNE 30,     JUNE 30,     JUNE 30,
        SHARE AND EMPLOYEE DATA)            1996         1995         1994         1993         1992
- ----------------------------------------  --------     --------     --------     --------     --------
<S>                                       <C>          <C>          <C>          <C>          <C>
Revenues, net...........................  $2,865.2     $2,130.9     $1,539.7     $1,225.2      $938.3
Gross Profit............................     382.1        394.1        317.9        182.0       110.6
Operating income (loss).................      77.5        133.0         91.9        (10.0)      (67.0)
Net Income (loss).......................      96.9        123.3         73.1        (25.1)      (72.9)
Earnings (loss) per share:
  Primary...............................  $   2.01     $   2.56     $   1.77     $   (.79)     $(2.49)
  Fully diluted.........................  $   2.01     $   2.47     $   1.70     $   (.79)     $(2.49)
Working capital.........................  $  280.2     $  360.5     $  261.7     $  111.5      $138.9
Total assets............................  $  984.1     $  858.8     $  640.5     $  531.2      $532.5
Total long-term debt....................        --           --     $   58.6     $  182.6      $243.0
Shareholders' equity....................  $  453.9     $  473.4     $  288.2     $  131.0      $112.3
Number of employees.....................     9,628        7,647        6,593        7,322       6,906
</TABLE>

 

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS
 
OVERVIEW
 
     Western Digital operates in an extremely competitive industry which has
experienced a great deal of consolidation and change over the past several
years. The industry is characterized by short product life cycles, dependence
upon a limited number of suppliers for certain component parts, dependence upon
highly skilled engineering and other personnel, significant expenditures for
product development and recurring periods of severe price competition.
 
     The Company's product strategy for the PC market is to be the first to
market in volume with the highest capacity per platter 3.5-inch EIDE hard drives
at competitive prices. The successful implementation of this strategy during the
last three fiscal years has resulted in significant increases in unit shipments
of hard drives, with attendant improvements in factory utilization and
manufacturing efficiencies, lower component costs and overall reductions in per
unit manufacturing costs.
 
                                       11

<PAGE>   12
 
     During the first quarter of 1996, the Company sold its multimedia business
to Philips Semiconductors, Inc. Later in 1996, Western Digital sold its high
speed fiber-optic communication links and input/output products businesses to
Vixel Corporation and Adaptec, Inc. ("Adaptec"), respectively. These businesses
represented the final elements of the Company's MCP group. Concurrent with the
sale of these final two businesses, the Company restructured its business to
focus on its primary objectives and strengths: the design, manufacture and sale
of hard drives. Beginning with the fourth quarter of 1996, the Company's
operations were related entirely to hard drive products.
 
     The Company invested a significant amount during the year in the
development of two new hard drive product lines, enterprise storage products and
mobile PC products. The Company expects to begin shipping these new products in
1997 and anticipates that these products will positively impact its consolidated
gross margin and operating income in 1997.
 
     Unless otherwise indicated, references herein to specific years and
quarters are to the Company's fiscal years and fiscal quarters.
 
RESULTS OF OPERATIONS
 
  Comparison of 1996, 1995 and 1994
 
     In 1996, the Company reported net income of $96.9 million, including a
one-time, pre-tax gain of $17.3 million on the sale of its multimedia products
business, compared with net income of $123.3 million for 1995 and $73.1 million
for 1994. The decrease in net income from 1995 to 1996 occurred because of a
decline in gross profit margin percentage of approximately five percentage
points and an increase in operating expenses as the Company invested in new
storage-related product lines. The increase in net income in 1995 over 1994
resulted from a 38% increase in revenues and higher net interest and other
income. A two percentage point decline in gross profit margin partially offset
these improvements.
 
     Sales of hard drive products were $2.8, $1.9 and $1.4 billion in 1996, 1995
and 1994, respectively. During 1996, unit shipments increased 50% which,
combined with a modest decline in average selling prices ("ASPs"), resulted in
hard drive revenues increasing 44% from 1995. Although increased sales to OEMs
during 1996 accounted for the majority of the increase in unit shipments, a
year-over-year increase in reseller units was also a considerable factor. During
1995, unit shipments increased 49% from 1994, but declining ASPs reduced the
1994 to 1995 hard drive revenue growth rate to 41%. The revenue increase in 1995
primarily resulted from increased business with OEMs.
 
     Gross profit margins were as follows:
 

<TABLE>
<CAPTION>
                                                               1996      1995      1994
                                                               ----      ----      ----
        <S>                                                    <C>       <C>       <C>
        Hard drive products..................................  12.8%     16.2%     19.1%
        Microcomputer products...............................  36.8%     41.8%     33.7%
        Overall..............................................  13.3%     18.5%     20.6%
</TABLE>

 
     The decrease in gross profit margin from 1995 to 1996 was primarily due to
three factors. First, higher-capacity products were introduced at lower average
selling prices as a result of competitive pricing pressures. Second, the Company
shipped a broader mix of hard drives during fiscal year 1996. This resulted in
higher shipments of lower-capacity products at lower price points, which
generally have smaller gross margins. Finally, fewer microcomputer products
(which have higher average gross margin percentages) were sold due to the sale
of the MCP businesses during 1996.
 
     During 1995, the Company increased its shipments of hard drive products to
OEMs, which typically require lower prices and a broader product mix (including
lower capacity hard drives) in exchange for high volumes. Overall hard drive
industry conditions also became more competitive during 1995 as the industry's
manufacturing capacity more closely matched demand and competitors continued to
shorten product development cycles. These were the primary factors which
contributed to the decline in hard drive product gross margins during 1995.
 
                                       12

<PAGE>   13
 
     The decline in microcomputer product gross margin was generally
attributable to the relationship between fixed costs and the lower revenue base
experienced as the non-drive related products lines were divested in 1996.
 
     Research and development expense ("R&D") in 1996 was approximately $150.1
million, or 5.2% of revenues, as compared to approximately $130.8 million, or
6.1% of revenues, and $112.8 million, or 7.3% of revenues, during 1995 and 1994,
respectively. Higher expenditures to support the development of enterprise
storage and mobile products, partially offset by lower expenditures for
microcomputer products, were the primary factors contributing to the $19.3
million, or 15%, increase in total R&D expenses in 1996. R&D expenses declined
as a percentage of revenues primarily as a result of the higher revenue base in
1996 as compared to 1995 and 1994.
 
     Selling, general and administrative expenses ("SG&A") were $154.5 million,
or 5.4% of revenues, in 1996 versus $130.3 million, or 6.1% of revenues, and
$113.2 million, or 7.4% of revenues, in 1995 and 1994, respectively. The
increases in total SG&A expenses were primarily the result of higher selling,
marketing and other related expenses in support of higher revenue levels and
higher royalty expenses. The higher revenue base was the primary factor
contributing to the decline in SG&A expenses as a percentage of revenues in 1996
as compared to 1995 and 1994.
 
     Interest and other income was $13.1 million in 1996. Interest and other
income was $12.0 million in 1995 versus an expense of $5.8 million in 1994. The
improvement from 1995 to 1996 was the result of the elimination of the Company's
outstanding debt in June 1995, partially offset by lower average cash and short-
term investment balances. The improvement from 1994 to 1995 was the result of
significantly lower levels of outstanding debt and higher average cash and
short-term investment balances.
 
     The provision for income taxes in 1996 and 1995 consists primarily of taxes
associated with certain of the Company's foreign subsidiaries which had taxable
income. The Company's effective tax rate of 10% recorded in 1996 and 15% in 1995
and 1994 results primarily from the earnings of certain subsidiaries which are
taxed at substantially lower tax rates as compared with United States statutory
rates (see Note 5 of Notes to Consolidated Financial Statements).
 
     In October 1995, The Financial Accounting Standards Board released
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (SFAS 123). SFAS 123 provides an alternative to APB Opinion 25,
"Accounting for Stock Issued to Employees" (APBO 25) and requires additional
disclosures. SFAS 123 is effective for the Company's fiscal year beginning June
30, 1996. The Company plans to continue to account for its employee stock plans
in accordance with the provisions of APBO 25 and provide the additional
disclosures required by SFAS 123 in 1997. Accordingly, SFAS 123 is not expected
to have a material impact on the Company's financial position or results of
operations.
 
LIQUIDITY AND CAPITAL RESOURCES
 
     At June 29, 1996, the Company had $219.2 million in cash and short-term
investments as compared with $307.7 million at July 1, 1995. During 1996, the
Company generated $58.3 million in cash flow from operations. Cash flow from
earnings (net of the gain on sale of the multimedia business), depreciation and
amortization, and an increase in current liabilities were partially offset by
cash used to fund increased accounts receivable, inventories, prepaid expenses
and other assets. Other significant uses of cash during 1996 were $108.7 million
for capital expenditures, which were incurred primarily to support increased
production of hard drives and related components, and the acquisition of 7.7
million shares of the Company's common stock in the open market for $132.1
million. Partially offsetting these uses of cash was $85.5 million received in
connection with the sale of the multimedia, high speed fiber-optics
communication links and input/output products businesses. The Company
anticipates that capital expenditures in 1997 will total approximately $150
million and will relate to increased hard drive and media capacity and normal
replacement of existing assets. In addition, the Company may purchase up to an
additional 2.6 million shares of its common stock under the current Board of
Directors' authorization, which expires in July 1997.
 
     The Company has an $150 million revolving credit agreement with certain
financial institutions extending through April 1999. This facility is intended
to meet short-term working capital requirements which may arise from time to
time. The Company believes that its current cash and short-term investments
combined with cash flow from operations and its revolving credit agreement will
be sufficient to meet its working capital needs
 
                                       13

<PAGE>   14
 
for the foreseeable future. However, the Company's ability to sustain its
favorable working capital position is dependent upon a number of factors that
are discussed below under the heading "Certain Factors Affecting Future
Operating Results."
 
CERTAIN FACTORS AFFECTING FUTURE OPERATING RESULTS
 
     The hard drive industry in which the Company competes is subject to a
number of risks which have affected the Company's operating results in the past
and could affect its future operating results. Demand for the Company's hard
drive products depends on the demand for the computer systems manufactured by
its customers and storage upgrades to computer systems, which in turn are
affected by computer system product cycles, end user demand for increased
storage capacity, and prevailing economic conditions. Growth in demand for
computer systems, especially in the desktop segment where the Company derives a
significant amount of its revenue, has historically been subject to significant
fluctuations. Such fluctuations have in the past and may in the future result in
deferral or cancellation of orders for the Company's products.
 
     Even during periods of consistent demand, the hard drive industry has been
characterized by intense competition and ongoing price erosion over the life of
a given drive product, and the Company expects that price erosion in the data
storage industry will continue for the foreseeable future. This competition and
continuing price erosion could adversely affect the Company's result of
operations in any given quarter, and such adverse effect often cannot be
anticipated until late in any given quarter.
 
     The demand of hard drive customers for greater storage capacity and higher
performance has led to short product life cycles that require the Company to
constantly develop and introduce new drive products on a cost effective and
timely basis. Failure of the Company to execute its strategy of achieving
time-to-market in volume leadership with these new products, or any delay in
introduction of more advanced and more cost effective products, could result in
significantly lower gross margins. The Company's future is therefore dependent
upon its ability to develop new products, to qualify these new products with its
customers, to successfully introduce these products to the market on a timely
basis, and to commence volume production to meet customer demands. In this
regard, the Company's new enterprise storage products, currently under
development, are expected to achieve volume production and contribute to sales
beginning in the second quarter of 1997. The Company's inability to successfully
achieve its sales goals for its enterprise storage products would significantly
impact the Company's future operating results. The Company's future operating
results may also be adversely affected if it is unsuccessful in marketing the
3.0-inch form factor hard drive to the mobile PC market.
 
     All of the Company's hard drive products currently utilize conventional
thin film inductive head technology. The Company believes that MR heads, which
enable higher capacity per disk than conventional thin film inductive heads,
will eventually replace thin film inductive heads as the leading recording head
technology. Several of the Company's major competitors incorporate MR head
technology into some of their current products. Failure of the Company to
successfully manufacture and market products incorporating MR head technology in
a timely manner could have a material adverse effect on the Company's business
and results of operations.
 
     The Company's operating results have been and may in the future be subject
to significant quarterly fluctuations as a result of a number of other factors.
These factors have included the timing of orders from and shipments of products
to major customers, product mix, pricing, delays in product development,
introduction in production, competing technologies, variations in product cost,
component availability due to single or limited sources of supply, foreign
exchange fluctuations, increased competition and general economic and industry
fluctuations. The Company's future operating results may also be adversely
affected by an adverse judgment or settlement in the legal proceedings in which
the Company is currently involved (see "Part I, Item 3. Legal Proceedings").
 
                                       14

<PAGE>   15
 

I
TEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
         INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
 

<TABLE>
<CAPTION>
                                                                                      PAGE(S)
                                                                                      -------
<S>                                                                                   <C>
CONSOLIDATED FINANCIAL STATEMENTS:
  Independent Auditors' Report......................................................      16
  Consolidated Statements of Income -- Three Years Ended June 29, 1996..............      17
  Consolidated Balance Sheets -- June 29, 1996 and July 1, 1995.....................      18
  Consolidated Statements of Shareholders' Equity -- Three Years Ended June 29,
     1996...........................................................................      19
  Consolidated Statements of Cash Flows -- Three Years Ended June 29, 1996..........      20
  Notes to Consolidated Financial Statements........................................   21-30

FINANCIAL STATEMENT SCHEDULE:
  Schedule II -- Consolidated Valuation and Qualifying Accounts -- Three Years Ended
     June 29, 1996..................................................................      31
</TABLE>

 
                                       15

<PAGE>   16
 

                          INDEPENDENT AUDITORS' REPORT
 
The Board of Directors
Western Digital Corporation:
 
     We have audited the consolidated financial statements of Western Digital
Corporation and subsidiaries as listed in the accompanying index. In connection
with our audits of the consolidated financial statements, we also have audited
the financial statement schedule as listed in the accompanying index. These
consolidated financial statements and the financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and the financial statement
schedule based on our audits.
 
     We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
 
     In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Western
Digital Corporation and subsidiaries as of June 29, 1996 and July 1, 1995, and
the results of their operations and their cash flows for each of the years in
the three-year period ended June 29, 1996, in conformity with generally accepted
accounting principles. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.
 
                                          KPMG PEAT MARWICK LLP
 
Orange County, California
July 24, 1996

 
                                       16

<PAGE>   17
 
                          WESTERN DIGITAL CORPORATION
 
                       CONSOLIDATED STATEMENTS OF INCOME
 
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
 

<TABLE>
<CAPTION>
                                                                          YEARS ENDED
                                                        ------------------------------------------------
                                                          JUNE 29,          JULY 1,          JUNE 30,
                                                            1996              1995             1994
                                                        -------------     ------------     -------------
<S>                                                     <C>               <C>              <C>
Revenues, net.........................................    $2,865,219        $2,130,867       $1,539,680
Costs and expenses:
  Cost of revenues....................................     2,483,155         1,736,761        1,221,749
  Research and development............................       150,112           130,789          112,827
  Selling, general and administrative (Note 8)........       154,497           130,286          113,224
                                                          ----------        ----------       ----------
          Total costs and expenses....................     2,787,764         1,997,836        1,447,800
                                                          ----------        ----------       ----------
Operating income......................................        77,455           133,031           91,880
Net interest and other income (expense) (Note 2)......        13,134            12,002           (5,838)
Gain on sale of multimedia business (Note 8)..........        17,275                --               --
                                                          ----------        ----------       ----------
Income before income taxes............................       107,864           145,033           86,042
Provision for income taxes (Note 5)...................        10,970            21,731           12,906
                                                          ----------        ----------       ----------
Net income............................................    $   96,894        $  123,302       $   73,136
                                                          ==========        ==========       ==========
Earnings per common and common equivalent share:
  Primary.............................................    $     2.01        $     2.56       $     1.77
                                                          ==========        ==========       ==========
  Fully diluted.......................................    $     2.01        $     2.47       $     1.70
                                                          ==========        ==========       ==========
Common and common equivalent shares used in computing
  per share amounts:
  Primary.............................................        48,124            48,198           41,363
                                                          ==========        ==========       ==========
  Fully diluted.......................................        48,280            51,420           45,680
                                                          ==========        ==========       ==========
</TABLE>

 
                See notes to consolidated financial statements.
 
                                       17

<PAGE>   18
 
                          WESTERN DIGITAL CORPORATION
 
                          CONSOLIDATED BALANCE SHEETS
 
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
 

<TABLE>
<CAPTION>
                                                                        JUNE 29,      JULY, 1,
                                                                          1996          1995
                                                                        ---------     --------
<S>                                                                     <C>           <C>
ASSETS
Current assets:
  Cash and cash equivalents...........................................  $ 182,565     $217,531
  Short-term investments..............................................     36,598       90,177
  Accounts receivable, less allowance for doubtful accounts
     of $9,376 in 1996 and $9,309 in 1995.............................    409,473      303,841
  Inventories (Note 2)................................................    142,622       98,925
  Prepaid expenses....................................................     23,006       19,663
                                                                        ---------     --------
          Total current assets........................................    794,264      730,137
Property and equipment at cost, net (Note 2)..........................    148,258       88,576
Intangible and other assets, net......................................     41,621       40,127
                                                                        ---------     --------
          Total assets................................................  $ 984,143     $858,840
                                                                        =========     ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
  Accounts payable....................................................  $ 345,866     $250,325
  Accrued compensation................................................     30,457       30,064
  Accrued expenses....................................................    137,699       89,213
                                                                        ---------     --------
          Total current liabilities...................................    514,022      369,602
Deferred income taxes (Note 5)........................................     16,229       15,812
Commitments and contingent liabilities (Note 4)
Shareholders' equity (Notes 3 and 6):
  Preferred stock, $.10 par value; Authorized -- 5,000 shares;
     Outstanding -- None..............................................
  Common stock, $.10 par value; Authorized -- 95,000 shares;
     Outstanding -- 50,666 shares in 1996 and 50,482 shares in 1995...      5,066        5,048
  Additional paid-in capital..........................................    349,773      355,624
  Retained earnings...................................................    220,470      123,576
  Treasury stock-common shares at cost;
     7,095 shares in 1996 and 805 shares in 1995......................   (121,417)     (10,822)
                                                                        ---------     --------
          Total shareholders' equity..................................    453,892      473,426
                                                                        ---------     --------
          Total liabilities and shareholders' equity..................  $ 984,143     $858,840
                                                                        =========     ========
</TABLE>

 
                See notes to consolidated financial statements.
 
                                       18

<PAGE>   19
 
                          WESTERN DIGITAL CORPORATION
 
                CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
 
                        THREE YEARS ENDED JUNE 29, 1996
 
                                 (IN THOUSANDS)
 

<TABLE>
<CAPTION>
                                                                                                    RETAINED
                                           COMMON STOCK         TREASURY STOCK       ADDITIONAL     EARNINGS         TOTAL
                                          ---------------     ------------------      PAID-IN     (ACCUMULATED   SHAREHOLDERS'
                                          SHARES   AMOUNT     SHARES    AMOUNT        CAPITAL       DEFICIT)        EQUITY
                                          ------   ------     ------   ---------     ----------   ------------   -------------
<S>                                       <C>      <C>        <C>      <C>           <C>          <C>            <C>
BALANCE AT JUNE 30, 1993................  35,338   $3,534         --   $      --      $200,278      $(72,862)      $ 130,950
Exercise of stock options...............   1,838     184          --          --         7,324            --           7,508
Common stock offering, net (Note 6).....   7,619     762          --          --        72,531            --          73,293
Common stock issued upon conversion of
  debentures............................      24       2          --          --           352            --             354
Common stock issued in settlement of
  shareholder lawsuit...................      76       8          --          --         1,031            --           1,039
Income tax benefit from stock options
  exercised (Note 5)....................      --      --          --          --         1,959            --           1,959
Net income..............................      --      --          --          --            --        73,136          73,136
                                          ------   ------     ------   ---------      --------      --------        --------
BALANCE AT JUNE 30, 1994................  44,895   4,490          --          --       283,475           274         288,239
Exercise of stock options...............   1,076     107          --          --         5,583            --           5,690
ESPP shares issued (Note 6).............     484      48          --          --         5,557            --           5,605
Common stock issued upon conversion of
  debentures (Note 3)...................   4,027     403          --          --        56,987            --          57,390
Income tax benefit from stock options
  exercised (Note 5)....................      --      --          --          --         4,022            --           4,022
Purchase of treasury stock..............      --      --        (805)    (10,822)           --            --         (10,822)
Net income..............................      --      --          --          --            --       123,302         123,302
                                          ------   ------     ------   ---------      --------      --------        --------
BALANCE AT JULY 1, 1995.................  50,482   5,048        (805)    (10,822)      355,624       123,576         473,426
Purchase of treasury stock..............      --      --      (7,720)   (132,114)           --            --        (132,114)
Exercise of stock options...............     184      18         784      12,833        (5,542)           --           7,309
ESPP shares issued (Note 6).............      --      --         646       8,686          (309)           --           8,377
Net income..............................      --      --          --          --            --        96,894          96,894
                                          ------   ------     ------   ---------      --------      --------        --------
BALANCE AT JUNE 29, 1996................  50,666   $5,066     (7,095)  $(121,417)     $349,773      $220,470       $ 453,892
                                          ======   ======     ======   =========      ========      ========        ========
</TABLE>

 
                See notes to consolidated financial statements.
 
                                       19

<PAGE>   20
 
                          WESTERN DIGITAL CORPORATION
 
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
 
                                 (IN THOUSANDS)
 

<TABLE>
<CAPTION>
                                                                       YEARS ENDED
                                                          -------------------------------------
                                                          JUNE 29,       JULY 1,      JUNE 30,
                                                            1996          1995          1994
                                                          ---------     ---------     ---------
<S>                                                       <C>           <C>           <C>
CASH FLOWS FROM OPERATING ACTIVITIES
  Net income............................................  $  96,894     $ 123,302     $  73,136
  Adjustments to reconcile net income to net cash
     provided by operating activities:
     Depreciation and amortization......................     51,643        43,612        46,175
     Gain on sale of multimedia business................    (17,275)           --            --
     Changes in current assets and liabilities,
       excluding the effects of facility and business
       sales (Note 8):
       Accounts receivable..............................   (107,532)     (102,329)      (42,034)
       Inventories......................................    (69,180)      (19,350)       23,793
       Prepaid expenses.................................     (5,478)       (6,746)       (2,130)
       Accounts payable and accrued expenses............    110,311        93,858        74,149
  Deferred income taxes.................................        417        (2,072)        7,133
  Other assets..........................................     (1,519)       (8,958)       (1,384)
                                                          ---------     ---------     ---------
     Net cash provided by operating activities..........     58,281       121,317       178,838
                                                          ---------     ---------     ---------
CASH FLOWS FROM INVESTING ACTIVITIES
  Capital expenditures, net.............................   (108,696)      (54,774)      (16,282)
  Proceeds from sale of facility and businesses 
     (Note 8)...........................................     85,486            --       110,677
  Decrease (increase) in short-term investments.........     53,579       (90,177)           --
  Increase in other assets..............................     (7,188)       (6,287)           --
                                                          ---------     ---------     ---------
          Net cash provided by (used for) investing
            activities..................................     23,181      (151,238)       94,395
                                                          ---------     ---------     ---------
CASH FLOWS FROM FINANCING ACTIVITIES
  Repayment of long-term debt...........................         --            --      (146,346)
  Proceeds from stock offering, net (Note 6)............         --            --        73,293
  Exercise of stock options and warrants, including tax
     benefit............................................      7,309         9,712         9,467
  Proceeds from ESPP shares issued......................      8,377         5,605            --
  Redemption of convertible debentures (Note 3).........         --          (527)           --
  Repurchase of common stock............................   (132,114)      (10,822)           --
                                                          ---------     ---------     ---------
          Net cash provided by (used for) financing
            activities..................................   (116,428)        3,968       (63,586)
                                                          ---------     ---------     ---------
Net increase (decrease) in cash and cash equivalents....    (34,966)      (25,953)      209,647
Cash and cash equivalents at beginning of year..........    217,531       243,484        33,837
                                                          ---------     ---------     ---------
Cash and cash equivalents at end of year................  $ 182,565     $ 217,531     $ 243,484
                                                          =========     =========     =========
</TABLE>

 
                See notes to consolidated financial statements.
 
                                       20

<PAGE>   21
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES
 
     Western Digital Corporation ("Western Digital" or the "Company") has
prepared its financial statements in accordance with generally accepted
accounting principles and has adopted accounting policies and practices which
are generally accepted in the industry in which it operates. Following are the
Company's significant accounting policies:
 
  Fiscal Year
 
     Effective July 1, 1994, the Company changed its fiscal year end from June
30 to a 52 or 53-week year ending on the Saturday nearest June 30. Accordingly,
the 1996 and 1995 fiscal years ended on June 29 and July 1, respectively,
whereas the previous fiscal year ended on June 30. All general references to
years relate to fiscal years unless otherwise noted.
 
  Basis of Presentation
 
     The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation. The accounts of foreign
subsidiaries have been translated using the U.S. dollar as the functional
currency. As such, foreign exchange gains or losses resulting from remeasurement
of these accounts are reflected in the results of operations. Monetary and
nonmonetary asset and liability accounts have been translated at the exchange
rate in effect at each year end and at historical rates, respectively. Operating
statement accounts have been translated at average monthly exchange rates.
 
  Cash Equivalents and Short-Term Investments
 
     The Company's cash equivalents represent highly liquid investments,
primarily money market funds and commercial paper, with original maturities of
three months or less. Short-term investments represent investments in U.S.
Treasury Bills with original maturities beyond three months and less than twelve
months and are considered held to maturity.
 
  Concentration of Credit Risk
 
     The Company designs, manufactures and sells hard drives to personal
computer manufacturers and resellers throughout the world. The Company performs
ongoing credit evaluations of its customers' financial condition and generally
requires no collateral. The Company maintains reserves for potential credit
losses, and such losses have historically been within management's expectations.
The Company also has cash equivalent and short-term investment policies that
limit the amount of credit exposure to any one financial institution or
investment instrument, and require that investments be made only with financial
institutions or in investment instruments evaluated as highly credit-worthy.
 
  Inventory Valuation
 
     Inventories are valued at the lower of cost or net realizable value. Cost
is on a first-in, first-out basis for raw materials and is computed on a
currently adjusted standard basis (which approximates first-in, first-out) for
work in process and finished goods.
 
  Depreciation and Amortization
 
     The cost of property and equipment is depreciated over the estimated useful
lives of the respective assets. Depreciation is computed on a straight-line
basis for financial reporting purposes and on an accelerated basis for income
tax purposes. Leasehold improvements are amortized over the lesser of the
estimated useful lives of the assets or the related lease terms. Goodwill and
purchased technology, which are included in other assets,
 
                                       21

<PAGE>   22
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
are capitalized at cost and amortized on a straight-line basis over their
estimated lives which are fifteen and five to fifteen years, respectively.
 
     In accordance with Statement of Financial Accounting Standards No. 121
("SFAS 121"), "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of," which was adopted by the Company in 1996,
the Company reviews identifiable intangibles and goodwill for impairment
whenever events or circumstances indicate the carrying amounts may not be
recoverable. If the sum of the expected future cash flows (undiscounted and
without interest charges) is less than the carrying amount of an asset, an
impairment loss is recognized. The effect of adopting SFAS 121 was not material
to the financial statements.
 
  Revenue Recognition
 
     The Company recognizes revenue at time of shipment and records a reserve
for price adjustments, warranty and estimated sales returns. In accordance with
standard industry practice, the Company's agreements with its resellers provide
price protection for inventories held by the resellers at the time of published
list price reductions and, under certain circumstances, stock rotation for
slow-moving items. These agreements may be terminated upon written notice by
either party. In the event of termination, the Company may be obligated to
repurchase a certain portion of the resellers' inventory.
 
  Income Taxes
 
     The Company accounts for income taxes under the provisions of Statement of
Financial Accounting Standards No. 109 ("SFAS 109"), "Accounting for Income
Taxes." SFAS 109 generally provides that deferred tax assets and liabilities be
recognized for temporary differences between the financial reporting basis and
the tax basis of the Company's assets and liabilities and expected benefits of
utilizing net operating loss ("NOL") carryforwards. The Company records a
valuation allowance for certain temporary differences for which it is not
certain it will receive future tax benefits. The impact on deferred taxes of
changes in tax rates and laws, if any, are applied to the years during which
temporary differences are expected to be settled and reflected in the financial
statements in the period of enactment.
 
  Per Share Information
 
     Primary earnings per share amounts are based upon the weighted average
number of shares and dilutive common stock equivalents for each period
presented. For 1995 and 1994, fully diluted earnings per share also include the
dilutive effects of shares assumed to be issued upon conversion of the Company's
convertible subordinated debentures.
 
  Fair Value of Financial Instruments
 
     The carrying amount of cash and cash equivalents approximates fair value
for all periods presented because of the short-term maturity of these financial
instruments. The carrying amounts of all other financial instruments in the
consolidated balance sheets approximate fair values.
 
  Use of Estimates
 
     Company management has made a number of estimates and assumptions relating
to the reporting of assets and liabilities in conformity with generally accepted
accounting principles. Actual results could differ from these estimates.
 
  Reclassifications
 
     Certain prior years' amounts have been reclassified to conform to the
current year presentation.
 
                                       22

<PAGE>   23
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
NOTE 2 -- SUPPLEMENTAL FINANCIAL STATEMENT DATA (IN THOUSANDS)
 

<TABLE>
<CAPTION>
                                                          1996          1995         1994
                                                        ---------     ---------     -------
    <S>                                                 <C>           <C>           <C>
    Net Interest and Other Income (Expense)
      Interest income.................................  $  13,134     $  12,976     $ 2,942
      Other income....................................         --         3,056          --
      Interest expense................................         --        (4,030)     (8,780)
                                                        ---------     ---------     -------
      Net interest and other income (expense).........  $  13,134     $  12,002     $(5,838)
                                                        =========     =========     =======
      Cash paid for interest..........................  $      --     $   4,471     $ 9,035
                                                        =========     =========     =======
    Inventories
      Finished goods..................................  $  72,239     $  31,811
      Work in process.................................     31,781        35,763
      Raw materials and component parts...............     38,602        31,351
                                                        ---------     ---------
                                                        $ 142,622     $  98,925
                                                        =========     =========
    Property and Equipment
      Land and buildings..............................  $  34,165     $  11,067
      Machinery and equipment.........................    199,614       163,857
      Furniture and fixtures..........................     10,617        11,302
      Leasehold improvements..........................     47,352        30,965
                                                        ---------     ---------
                                                          291,748       217,191
      Accumulated depreciation and amortization.......   (143,490)     (128,615)
                                                        ---------     ---------
      Net property and equipment......................  $ 148,258     $  88,576
                                                        =========     =========
</TABLE>

 
NOTE 3 -- DEBT
 
  Line of Credit
 
     During April 1996, the Company entered into an unsecured revolving credit
agreement with certain financial institutions which provides for borrowings up
to $150 million. Borrowings under the agreement bear interest at either the
banks' base rate or the Federal Funds Effective Rate plus a margin. The
agreement, which expires in April 1999, is intended to meet short-term working
capital requirements which may arise from time to time. The agreement requires
the Company to maintain certain financial ratios and restricts the payment of
dividends. No borrowings were made on this agreement during 1996.
 
  Subordinated Debt
 
     During 1995, $58.1 million of the Company's 9% convertible subordinated
debentures, due 2014, were converted into 4,026,623 shares of the Company's
common stock. In connection with this conversion, the Company charged $.7
million of unamortized issue costs to shareholders' equity. The remaining $.5
million of the Company's debentures were redeemed for cash.
 
NOTE 4 -- COMMITMENTS AND CONTINGENT LIABILITIES
 
  Patents and Licenses
 
     The Company owns numerous patents and has many patent applications in
process. The Company believes that, although its patents and applications have
significant value, the successful manufacturing and marketing of its products
depends primarily upon the technical competence and creative ability of its
personnel rather than on patent protection.
 
     The Company has cross-licensing agreements with IBM and Seagate Technology,
which grant the Company licenses for its products under patents owned by these
companies, and which grant each of these
 
                                       23

<PAGE>   24
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
companies a license for its products under patents owned by the Company. The
Company pays periodic royalties under the IBM cross-license agreement. Several
patent holders have made assertions that the Company needs a license under
certain patents. The Company conducts ongoing investigations into such
assertions and presently believes that any licenses ultimately determined to be
required could be obtained on commercially reasonable terms. However, there is
no assurance that such licenses are presently obtainable, or if later determined
to be required, could be obtained.
 
  Foreign Exchange Contracts
 
     The Company enters into short-term, forward exchange contracts to hedge the
impact of foreign currency fluctuations on certain underlying assets,
liabilities and future commitments denominated in foreign currencies. At June
29, 1996 and July 1, 1995, the Company had outstanding $177.6 and $110.0
million, respectively, of forward exchange contracts with commercial banks.
These contracts have maturity dates that do not exceed twelve months. The
realized and unrealized gains and losses on these contracts are deferred and
recognized in the results of operations in the period in which the underlying
transaction is consummated and are not material for all periods presented. Costs
associated with entering into such contracts are amortized over the life of the
instrument.
 
  Operating Leases
 
     The Company leases certain facilities and equipment under long-term,
non-cancelable operating leases which expire at various dates through 2006.
Rental expense under these leases, including month-to-month rentals, was $27.2,
$25.5, and $26.5 million in 1996, 1995, and 1994, respectively.
 
     Future minimum rental payments under non-cancelable operating leases as of
June 29, 1996 are (in thousands):
 

<TABLE>
        <S>                                                                  <C>
        1997...............................................................  $23,029
        1998...............................................................   16,540
        1999...............................................................   13,810
        2000...............................................................   12,716
        2001...............................................................    3,624
        Thereafter.........................................................    8,484
                                                                             -------
             Total future minimum rental payments..........................  $78,203
                                                                             =======
</TABLE>

 
  Legal Claims
 
     The Company was sued by Amstrad plc ("Amstrad") in December 1992 in Orange
County Superior Court. The complaint alleges that hard drives supplied by the
Company in 1988 and 1989 were defective and caused damages to Amstrad of $186.0
million for out-of-pocket expenses, lost profits, injury to Amstrad's reputation
and loss of goodwill. The Company filed a counterclaim for $3.0 million in
actual damages plus exemplary damages in an unspecified amount. Trial in the
matter is currently scheduled for February 1997. The Company believes that it
has meritorious defenses to Amstrad's claims and intends to vigorously defend
itself against the Amstrad claims and to press its claims against Amstrad in
this action. Although the Company believes the final disposition of this matter
will not have a material adverse effect on the Company's financial position or
results of operations, if Amstrad were to prevail on its liability claims, a
judgment in a material amount could be awarded against the Company.
 
     The Company is also subject to other legal proceedings and claims which
arise in the ordinary course of its business. Although occasional adverse
decisions (or settlements) may occur, the Company believes that the final
disposition of such matters will not have a material adverse effect on the
financial position or results of operations of the Company.
 
                                       24

<PAGE>   25
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
NOTE 5 -- INCOME TAXES
 
     The domestic and international components of income before income taxes are
as follows (in thousands):
 

<TABLE>
<CAPTION>
                                                           1996         1995         1994
                                                         --------     --------     --------
    <S>                                                  <C>          <C>          <C>
    United States......................................  $(10,877)    $ 26,421     $(25,140)
    International......................................   118,741      118,612      111,182
                                                         --------     --------     --------
    Income before income taxes.........................  $107,864     $145,033     $ 86,042
                                                         ========     ========     ========
</TABLE>

 
     The components of the provision for income taxes are as follows (in
thousands):
 

<TABLE>
<CAPTION>
                                                             1996        1995        1994
                                                            -------     -------     -------
    <S>                                                     <C>         <C>         <C>
    Current
      United States.......................................  $   400     $   342     $   337
      International.......................................   10,262      15,941       4,313
      State...............................................      310         310         620
                                                            -------     -------     -------
                                                             10,972      16,593       5,270
    Deferred, net
      United States.......................................       --       1,867       4,857
      International.......................................       (2)       (751)        820
                                                            -------     -------     -------
                                                                 (2)      1,116       5,677
    Additional paid-in capital from benefit of stock
      options exercised...................................       --       4,022       1,959
                                                            -------     -------     -------
    Provision for income taxes............................  $10,970     $21,731     $12,906
                                                            =======     =======     =======
</TABLE>

 
     The total cash paid for income taxes was $4.5, $4.9 and $1.1 million for
the years ended June 29, 1996, July 1, 1995 and June 30, 1994, respectively.
 
     Temporary differences and carryforwards which give rise to deferred tax
assets and liabilities at June 29, 1996 and July 1, 1995 are as follows (in
thousands):
 

<TABLE>
<CAPTION>
                                                                       1996         1995
                                                                     --------     --------
    <S>                                                              <C>          <C>
    Deferred tax assets:
      NOL carryforward.............................................  $ 44,880     $ 53,036
      Business credit carryforward.................................    23,095       21,114
      Reserves not currently deductible............................    44,747       24,795
      All other....................................................     8,519       10,051
                                                                     --------     --------
                                                                      121,241      108,996
      Valuation allowance..........................................  (117,231)    (105,076)
                                                                     --------     --------
      Total deferred tax assets....................................     4,010        3,920
    Deferred tax liabilities:
      Leases.......................................................     3,560        3,560
      All other....................................................    16,679       16,172
                                                                     --------     --------
      Total deferred tax liabilities...............................    20,239       19,732
                                                                     --------     --------
    Net deferred income taxes......................................  $ 16,229     $ 15,812
                                                                     ========     ========
</TABLE>

 
                                       25

<PAGE>   26
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
     Reconciliation of the United States Federal statutory rate to the Company's
effective tax rate is as follows:
 

<TABLE>
<CAPTION>
                                                              1996      1995      1994
                                                              -----     -----     -----
        <S>                                                   <C>       <C>       <C>
        U.S. Federal statutory rate.........................   35.0%     35.0%     35.0%
        State income taxes, net.............................    0.2       0.2       0.7
        Tax rate differential on international income.......  (30.7)    (19.3)    (34.7)
        Benefit of NOL carry forward........................   (7.6)     (4.8)     (8.6)
        NOL with no tax benefit realized....................    0.2        --      10.2
        Effect of valuation allowance.......................   11.4      (0.7)      6.0
        Other...............................................    1.7       4.6       6.4
                                                              -----     -----     -----
        Effective tax rate..................................   10.2%     15.0%     15.0%
                                                              =====     =====     =====
</TABLE>

 
     Certain income of selected subsidiaries is taxed at substantially lower
income tax rates as compared with local statutory rates. The lower rates reduced
income taxes and increased net earnings by $30.1 million ($.62 per share, fully
diluted), $33.2 million ($.65 per share, fully diluted) and $27.4 million ($.60
per share, fully diluted) in 1996, 1995 and 1994, respectively. These lower
rates are in effect through 2004.
 
     At June 29, 1996, the Company had federal net operating loss carryforwards
and tax credit carryforwards of $119.7 million and $23.1 million, respectively.
The losses expire in fiscal years 2007 and 2008, and the credits expire in
fiscal years 1997 through 2010.
 
     Net undistributed earnings from international subsidiaries at June 29, 1996
were $261.6 million. The net undistributed earnings are intended to finance
local operating requirements. Accordingly, an additional United States tax
provision has not been made.
 
NOTE 6 -- SHAREHOLDERS' EQUITY
 
     The following table summarizes all shares of common stock reserved for
issuance at June 29, 1996 (in thousands):
 

<TABLE>
<CAPTION>
                                                                              NUMBER
                                                                             OF SHARES
                                                                             ---------
        <S>                                                                  <C>
        Issuable in connection with:
          Exercise of stock options, including options available for
             grant.........................................................    6,122
          Employee stock purchase plan.....................................      620
                                                                               -----
                                                                               6,742
                                                                               =====
</TABLE>

 
  Common Stock Offering
 
     In February 1994, the Company issued 7,618,711 shares of its common stock
in a public common stock offering. Proceeds from the offering, net of
commissions, and other related expenses totaling $4.2 million, were $73.3
million.
 
  Stock Option Plans
 
     Western Digital's Employee Stock Option Plan ("Employee Plan") is
administered by the Compensation Committee of the Board of Directors which
determines the vesting provisions, the form of payment for the shares and all
other terms of the options. Terms of the Employee Plan require that the exercise
price of options be not less than the fair market value at the date of grant.
Options granted vest 25% one year from the date of grant and in twelve quarterly
increments thereafter. As of June 29, 1996, 1,548,099 options were exercisable
and 1,015,117 options were available for grant. Participants in the Employee
Plan are permitted to
 
                                       26

<PAGE>   27
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
utilize stock purchased previously as consideration to exercise options. The
following table summarizes activity under the Employee Plan (in thousands,
except per share amounts):
 

<TABLE>
<CAPTION>
                                                                    OPTIONS OUTSTANDING
                                                                    -------------------
                                                       NUMBER              PRICE
                                                      OF SHARES          PER SHARE          AMOUNT
                                                      ---------     -------------------     -------
<S>                                                   <C>           <C>                     <C>
OPTIONS OUTSTANDING AT JUNE 30, 1993................     5,094       $ 2.88  --  $13.63     $23,969
Granted.............................................     1,731         3.88  --   19.13      21,320
Exercised, net of value of redeemed shares..........    (1,785)        2.88  --    9.00      (7,120)
Cancelled or expired................................      (664)        2.88  --   19.13      (4,710)
                                                        ------       ------------------     -------
OPTIONS OUTSTANDING AT JUNE 30, 1994................     4,376         2.88  --   19.13      33,459
Granted.............................................     1,429        13.38  --   18.13      22,210
Exercised, net of value of redeemed shares..........    (1,036)        2.88  --   13.88      (5,478)
Cancelled or expired................................      (351)        2.88  --   19.13      (2,979)
                                                        ------       ------------------     -------
OPTIONS OUTSTANDING AT JULY 1, 1995.................     4,418         2.88  --   19.13      47,212
Granted.............................................     1,907        15.50  --   28.88      35,362
Exercised, net of value of redeemed shares..........      (898)        2.88  --   19.13      (6,805)
Cancelled or expired................................      (888)        3.25  --   20.75     (13,388)
                                                        ------       ------------------     -------
OPTIONS OUTSTANDING AT JUNE 29, 1996................     4,539       $ 2.88  --  $28.88     $62,381
                                                        ======       ==================     =======
</TABLE>

 
     In 1985, the Company adopted the Stock Option Plan for Non-Employee
Directors ("Director Plan") and reserved 800,000 shares for issuance thereunder.
The Director Plan was restated and amended in 1995. The Director Plan provides
for initial option grants to new directors of 20,000 shares per director and
additional grants of 5,000 options per director each year upon their reelection
as a director at the annual shareholders' meeting. Terms of the Director Plan
require that the exercise price of options be not less than the fair market
value at the date of grant. As of June 29, 1996, 64,500 options were exercisable
and 435,732 options were available for grant. The following table summarizes
activity under the Director Plan (in thousands, except per share amounts):
 

<TABLE>
<CAPTION>
                                                                     OPTIONS OUTSTANDING
                                                                     -------------------
                                                        NUMBER              PRICE
                                                       OF SHARES          PER SHARE          AMOUNT
                                                       ---------     -------------------     ------
<S>                                                    <C>           <C>                     <C>
OPTIONS OUTSTANDING AT JUNE 30, 1993.................      183        $ 5.25  --  $14.63     $1,602
Granted..............................................       90          4.25  --   17.13        941
Exercised............................................      (53)         4.25  --   11.50       (388)
Cancelled or expired.................................      (30)        12.88  --   12.88       (386)
                                                           ---        ------------------     ------
OPTIONS OUTSTANDING AT JUNE 30, 1994.................      190          4.25  --   17.13      1,769
Granted..............................................       40         14.00  --   17.75        614
Exercised............................................      (40)         4.25  --    7.44       (212)
Cancelled or expired.................................      (20)         4.25  --    7.75       (279)
                                                           ---        ------------------     ------
OPTIONS OUTSTANDING AT JULY 1, 1995..................      170          4.88  --   17.13      1,892
Granted..............................................       45         15.38  --   25.38        924
Exercised............................................      (70)         4.88  --   15.38       (504)
Cancelled or expired.................................      (13)         6.88  --    7.44        (91)
                                                           ---        ------------------     ------
OPTIONS OUTSTANDING AT JUNE 29, 1996.................      132        $13.88  --  $25.38     $2,221
                                                           ===        ==================     ======
</TABLE>

 
STOCK PURCHASE RIGHTS
 
     In 1989, the Company implemented a plan to protect shareholders' rights in
the event of a proposed takeover of the Company. Under the plan, each share of
the Company's outstanding common stock carries one Right to Purchase Series "A"
Junior Participating Preferred Stock ("the Right"). The Right enables the
 
                                       27

<PAGE>   28
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
holder, under certain circumstances, to purchase common stock of Western Digital
or of the acquiring Company at a substantially discounted price ten days after a
person or group publicly announces it has acquired or has tendered an offer for
15% or more of the Company's outstanding common stock. The Rights are redeemable
by the Company at $.01 per Right and expire in 1999.
 
EMPLOYEE STOCK PURCHASE PLAN
 
     During 1994, the Company implemented an employee stock purchase plan
("ESPP") in accordance with Section 423 of the Internal Revenue Code whereby
eligible employees may authorize payroll deductions of up to 10% of their salary
to purchase shares of the Company's common stock at 85% of the fair market value
of common stock on the date of grant or the exercise date, whichever is less.
Approximately 1.8 million shares of common stock have been reserved for issuance
under this plan. Approximately 646,000 and 484,000 shares were issued under this
plan during 1996 and 1995, respectively. No shares were issued during 1994.
 
SAVINGS AND PROFIT SHARING PLAN
 
     Effective July 1, 1991, the Company adopted an annual Savings and Profit
Sharing Plan covering eligible domestic employees. The Company authorized 6.5%,
8% and 8% of defined pre-tax profits to be allocated to the participants in
1996, 1995 and 1994, respectively. Payments to participants of the Savings and
Profit Sharing Plan were $7.1, $11.3, and $7.4 million in 1996, 1995 and 1994,
respectively.
 
NOTE 7 -- BUSINESS SEGMENT AND INTERNATIONAL OPERATIONS
 
     Western Digital currently operates in one industry segment--the design,
manufacture and marketing of hard drives for the personal computer market.
During 1996 and 1995, one customer accounted for 11% of the Company's revenues.
During 1994, two customers accounted for a total of 24% of the Company's
revenues.
 
     The Company's operations outside the United States include manufacturing
facilities in Singapore and Malaysia as well as sales offices throughout the
world.
 
     The following table summarizes operations by entities located within the
indicated geographic areas for the past three years. United States revenues to
unaffiliated customers include export sales, principally to Asia, of $674.1,
$399.2, and $300.0 million in 1996, 1995, and 1994, respectively.
 
     Transfers between geographic areas are accounted for at prices comparable
to normal sales through outside distributors. General and corporate expenses of
$61.5, $49.6, and $43.6 million in 1996, 1995, and 1994, respectively, have been
excluded in determining operating income by geographic region.
 
                                       28

<PAGE>   29
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 

<TABLE>
<CAPTION>
                                              UNITED
                                              STATES     EUROPE      ASIA      ELIMINATIONS     TOTAL
                                              ------     ------     ------     ------------     ------
                                                                   (IN MILLIONS)
<S>                                           <C>        <C>        <C>        <C>              <C>
Year ended June 29, 1996
  Sales to unaffiliated customers.........    $2,084      $735      $   46       $     --       $2,865
  Transfers between geographic areas......       869        96       2,540         (3,505)          --
                                              ------     ------     ------       --------       ------
  Revenues, net...........................    $2,953      $831      $2,586       $ (3,505)      $2,865
                                              ======     =====      ======       ========       ======
  Operating income........................    $   21      $  9      $  113       $     (4)      $  139
                                              ======     =====      ======       ========       ======
  Identifiable assets.....................    $  569      $143      $  276       $     (4)      $  984
                                              ======     =====      ======       ========       ======
Year ended July 1, 1995
  Sales to unaffiliated customers.........    $1,596      $485      $   50       $     --       $2,131
  Transfers between geographic areas......       139        57       1,216         (1,412)          --
                                              ------     ------     ------       --------       ------
  Revenues, net...........................    $1,735      $542      $1,266       $ (1,412)      $2,131
                                              ======     =====      ======       ========       ======
  Operating income........................    $   64      $  6      $  117       $     (4)      $  183
                                              ======     =====      ======       ========       ======
  Identifiable assets.....................    $  597      $ 78      $  185       $     (1)      $  859
                                              ======     =====      ======       ========       ======
Year ended June 30, 1994
  Sales to unaffiliated customers.........    $1,171      $321      $   48       $     --       $1,540
  Transfers between geographic areas......        50        28         874           (952)          --
                                              ------     ------     ------       --------       ------
  Revenues, net...........................    $1,221      $349      $  922       $   (952)      $1,540
                                              ======     =====      ======       ========       ======
  Operating income........................    $   24      $  6      $  108       $     (3)      $  135
                                              ======     =====      ======       ========       ======
  Identifiable assets.....................    $  430      $ 61      $  150       $     --       $  641
                                              ======     =====      ======       ========       ======
</TABLE>

 
NOTE 8 -- SALE OF FACILITY AND BUSINESSES
 
SALE OF MULTIMEDIA BUSINESS
 
     In October 1995, the Company sold its multimedia business to Philips
Semiconductors, Inc. ("Philips") for $51.9 million cash, resulting in a
one-time, pre-tax gain of $17.3 million. Through this transaction, Philips
acquired specific intellectual properties and assumed certain liabilities
directly related to the multimedia business.
 
SALE OF HIGH SPEED FIBER-OPTIC COMMUNICATION LINKS BUSINESS
 
     In March 1996, the Company sold its high speed fiber-optic communication
links business to Vixel Corporation for $1.2 million cash as well as other
non-cash consideration. This transaction was not material to the Company's
financial position or results of operations.
 
                                       29

<PAGE>   30
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
SALE OF INPUT/OUTPUT PRODUCTS BUSINESS
 
     During April 1996, the Company disposed of its input/output products
business, which represented the final element of its MCP group. The transaction
included the sale of related assets and resulted in a restructuring of the
Company's other support organizations. The restructuring resulted in personnel
reductions of 102 people, not including employees that were hired by the
purchaser, Adaptec, Inc. The net result of the asset sale and related
restructuring charges is included in selling, general and administrative
expenses and was not material to the Company's 1996 results of operations. The
consideration received and related costs associated with the sale of the
input/output products business are as follows (in millions):
 

<TABLE>
        <S>                                                                   <C>
        Sales price.........................................................  $ 32.4
        Assets sold or written off:
          Inventory, net....................................................   (18.0)
          Property and equipment............................................    (2.5)
          Prepaid expenses..................................................     (.5)
                                                                              ------
        Total assets sold or written off....................................   (21.0)
        Accruals for severance, facilities, contractual commitments
          and other miscellaneous items.....................................   (11.4)
                                                                              ------
                                                                              $   --
                                                                              ======
</TABLE>

 
     As of June 29, 1996, approximately $8.7 million of the accruals for
severance, facilities, contractual commitments and other miscellaneous items
remained. The majority of these amounts are scheduled to be paid during 1997.
 
SALE OF WAFER FABRICATION FACILITY
 
     In December 1993, the Company sold its silicon wafer fabrication facility
and certain tangible assets to Motorola, Inc. ("Motorola") for $111.0 million
plus certain other considerations, including the assumption by Motorola of
equipment leases and certain other liabilities associated with the facility. The
gain on the sale of the facility was not material to the financial position or
results of operations of the Company. Concurrent with the sale, the Company
entered into a supply contract with Motorola under which Motorola supplied
silicon wafers to Western Digital through December 1995.
 
NOTE 9 -- QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
 

<TABLE>
<CAPTION>
                                                    FIRST       SECOND        THIRD       FOURTH
                                                  ---------    ---------    ---------    ---------
                                                      (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S>                                               <C>          <C>          <C>          <C>
1996
  Revenues, net...............................     $558,149     $757,992     $728,362     $820,716
  Gross profit................................       80,792      103,379       93,324      104,569
  Operating income............................        6,165       21,175       19,014       31,101
  Net income..................................        8,327       36,393       19,438       32,736
  Primary earnings per share..................          .16          .75          .42          .71
  Fully diluted earnings per share............     $    .16     $    .75     $    .42     $    .71
                                                   ========     ========     ========     ========
1995
  Revenues, net...............................     $464,590     $551,944     $529,297     $585,036
  Gross profit................................       97,767      109,040       88,368       98,931
  Operating income............................       37,902       47,330       20,664       27,135
  Net income..................................       34,718       42,554       19,650       26,380
  Primary earnings per share..................          .73          .89          .40          .54
  Fully diluted earnings per share............     $    .70     $    .85     $    .40     $    .52
                                                   ========     ========     ========     ========
</TABLE>

 
                                       30

<PAGE>   31
 
                          WESTERN DIGITAL CORPORATION
 
 
        SCHEDULE II -- CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS
 
                                 (IN THOUSANDS)
 

<TABLE>
<CAPTION>
                                                                              ALLOWANCE FOR
                                                                                DOUBTFUL
    THREE YEARS ENDED JUNE 29, 1996                                             ACCOUNTS
    -------------------------------                                           -------------
    <S>                                                                       <C>
    Balance at June 30, 1993..............................................       $ 9,340
      Charges to operations...............................................         3,797
      Deductions..........................................................        (2,124)
      Other...............................................................          (188)
                                                                                 -------
    Balance at June 30, 1994..............................................        10,825
      Charges to operations...............................................           250
      Deductions..........................................................        (1,682)
      Other...............................................................           (84)
                                                                                 -------
    Balance at July 1, 1995...............................................         9,309
      Charges to operations...............................................         1,279
      Deductions..........................................................        (1,212)
      Other...............................................................            --
                                                                                 -------
    Balance at June 29, 1996..............................................       $ 9,376
                                                                                 =======
</TABLE>

 

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE
 
     None.
 
                                       31

<PAGE>   32
 

                                    PART III
 

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
 
     There is incorporated herein by reference the information required by this
Item included in the Company's Proxy Statement for the 1996 Annual Meeting of
Shareholders under the captions "Election of Directors" and "Section 16(a)
Beneficial Ownership Reporting Compliance," which will be filed with the
Securities and Exchange Commission no later than 120 days after the close of the
fiscal year ended June 29, 1996.
 

ITEM 11.  EXECUTIVE COMPENSATION
 
     There is incorporated herein by reference the information required by this
Item included in the Company's Proxy Statement for the 1996 Annual Meeting of
Shareholders under the captions "Executive Compensation," "Compensation
Committee Interlocks and Insider Participation" and "Stock Performance Graph,"
which will be filed with the Securities and Exchange Commission no later than
120 days after the close of the fiscal year ended June 29, 1996.
 

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
 
     There is incorporated herein by reference the information required by this
Item included in the Company's Proxy Statement for the 1996 Annual Meeting of
Shareholders under the caption "Security Ownership of Beneficial Owners," which
will be filed with the Securities and Exchange Commission no later than 120 days
after the close of the fiscal year ended June 29, 1996.
 

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
 
     There is incorporated herein by reference the information required by this
Item included in the Company's Proxy Statement for the 1996 Annual Meeting of
Shareholders under the caption "Certain Relationships and Related Transactions,"
which will be filed with the Securities and Exchange Commission no later than
120 days after the close of the fiscal year ended June 29, 1996.
 

                                    PART IV
 

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
 
  (a)  Documents filed as a part of this Report:
 
     (1) Index to Financial Statements
 
          The financial statements included in Part II, Item 8 of this document
     are filed as part of this Report.
 
     (2) Financial Statement Schedules
 
          The financial statement schedule included in Part II, Item 8 of this
     document is filed as part of this Report.
 
          All other schedules are omitted as the required information is
     inapplicable or the information is presented in the consolidated financial
     statements or related notes.
 
          Separate financial statements of the Company have been omitted as the
     Company is primarily an operating company and its subsidiaries are wholly
     owned and do not have minority equity interests and/or indebtedness to any
     person other than the Company in amounts which together exceed 5% of the
     total consolidated assets as shown by the most recent year-end consolidated
     balance sheet.
 
                                       32

<PAGE>   33
 
     (3) Exhibits
 

<TABLE>
<S>       <C>                                                                     
 3.1      Certificate of Incorporation of the Company (incorporated by reference
          to Exhibit 3.1 to the Company's Current Report on Form 8-K as filed
          with the Securities and Exchange Commission on January 15, 1987)
 3.2.1    By-laws of the Company (incorporated by reference to Exhibit 3.2.1 to
          the Company's Current Report on Form 8-K as filed with the Securities
          and Exchange Commission on July 18, 1994)
 3.3      Certificate of Agreement of Merger(2)
 3.4      Certificate of Amendment of Certificate of Incorporation (incorporated
          by reference to Exhibit 3.1 to the Company's Registration Statement on
          Form S-3 (File No. 33-28374) as filed with the Securities and Exchange
          Commission on April 26, 1989)
 4.1      Rights Agreement between the Company and First Interstate Bank, Ltd.,
          as Rights Agent, dated as of December 1, 1988 (incorporated by
          reference to Exhibit 1 to the Company's Current Report on Form 8-K as
          filed with the Securities and Exchange Commission on December 12,
          1988)
 4.2      Amendment No. 1 to Rights Agreement by and between the Company and
          First Interstate Bank, Ltd. dated as of August 10, 1990 (incorporated
          by reference to Exhibit 1 to the Company's Current Report on Form 8-K
          as filed with the Securities and Exchange Commission on August 14,
          1990)
 4.3      Certificate of Designation, Preferences and Rights of Series A Junior
          Participating Preferred Stock of the Company (incorporated by
          reference to Exhibit A of Exhibit 1 to the Company's Current Report on
          Form 8-K as filed with the Securities and Exchange Commission on
          December 12, 1988)
10.1      The Western Digital Corporation Amended and Restated Employee Stock
          Option Plan(7)**
10.3      The Registrant's 1993 Employee Stock Purchase Plan(3)**
10.4      Receivables Contribution and Sale Agreements, dated as of January 7,
          1994 by and between the Company, as seller, and Western Digital
          Capital Corporation, as buyer(5)
10.5      Receivables Purchase Agreement, dated as of January 7, 1994, by and
          among Western Digital Capital Corporation, as seller, the Company, as
          servicer, the Financial Institutions listed therein, as bank
          purchasers and J.P. Morgan Delaware, as administrative agent(5)
10.6      First Amendment to Receivables Purchase Agreement, dated March 23,
          1994, by and between Western Digital Corporation, as seller and the
          Financial Institutions listed therein as bank purchasers and
          administrative agents(5)
10.7      Assignment Agreement, dated as of March 23, 1994, by and between J. P.
          Morgan Delaware as Bank Purchaser and Assignor and the Bank of
          California, N.A. and the Long-term Credit Bank of Japan, LTD., Los
          Angeles Agency, as Assignees(5)
10.8      Asset Purchase Agreement dated December 16, 1993 by and between
          Motorola, Inc. and Western Digital regarding the sale and purchase of
          Western Digital's wafer fabrication facilities and certain related
          assets(4)
10.10     The Western Digital Corporation Deferred Compensation Plan(6)**
10.11     The Western Digital Corporation Executive Bonus Plan(6)**
10.12     The Extended Severance Plan of the Registrant(6)**
</TABLE>

 
                                       33

<PAGE>   34
 

<TABLE>
<S>       <C>                                                                     <C>
10.13     Manufacturing Building Lease between Wan Tien Realty Pte Ltd and
          Western Digital (Singapore) Pte Ltd dated as of November 9, 1993
          (incorporated by reference to Exhibit 10.17.1 to the Company's
          Quarterly Report on Form 10-Q as filed with the Securities and
          Exchange Commission on January 25, 1994)
10.15     Fiscal Year 1996 Western Digital Short-Term Bonus Plan(9)(10) **
10.16     Western Digital Long-Term Retention Plan (10) **
10.17     Subleases between Wan Tien Realty Pte Ltd and Western Digital
          (Singapore) Pte Ltd dated as of September 1, 1991(1)
10.18     Sublease between Wan Tien Realty Pte Ltd and Western Digital
          (Singapore) Pte Ltd dated as of October 12, 1992(1)
10.21     The Company's Non-Employee Directors Stock-for-Fees Plan(1)**
10.22     Office Building Lease between The Irvine Company and the Company dated
          as of January 13, 1988 (incorporated by reference to Exhibit 10.11 to
          Amendment No. 2 to the Company's Annual Report to Form 10-K as filed
          on Form 8 with the Securities and Exchange Commission on November 18,
          1988)(8)
10.30     The Company's Savings and Profit Sharing Plan(10) **
10.31     First Amendment to the Company's Savings and Profit Sharing 
          Plan(10)**
10.32     Second Amendment to the Company's Savings and Profit Sharing Plan* **
10.33     The Company's Amended and Restated Stock Option Plan for Non-Employee
          Directors* **
10.34     Fiscal Year 1997 Western Digital Management Incentive Plan* **
10.35     Revolving Credit Agreement, dated as of April 24, 1996, among Western
          Digital Corporation and Nationsbank of Texas, N.A., the First National
          Bank of Boston and the other Financial Institutions listed therein *
10.36     First Amendment to the Revolving Credit Agreement, dated as of June
          27, 1996, among Western Digital Corporation and Nationsbank of Texas,
          N.A., the First National Bank of Boston and the other Financial
          Institutions listed therein *
11        Computation of Per Share Earnings
21        Subsidiaries of the Company
23        Consent of Independent Auditors
27        Financial Data Schedule
</TABLE>

 
- ---------------
 
   * New exhibit filed with this Report.
 
  ** Compensation plan, contract or arrangement required to be filed as an
     exhibit pursuant to applicable rules of the Securities and Exchange
     Commission.
 
 (1) Incorporated by reference to the Company's Annual Report on Form 10-K as
     filed with the Securities and Exchange Commission on September 28, 1992.
 
 (2) Incorporated by reference to Amendment No. 2 to the Company's Registration
     Statement on Form S-l (No. 33-54968) as filed with the Securities and
     Exchange Commission on January 26, 1993.
 
 (3) Incorporated by reference to the Company's Registration Statement on Form
     S-8 (No. 33-51725) as filed with the Securities and Exchange Commission on
     December 28, 1993.
 
 (4) Incorporated by reference to the Company's Current Report on Form 8-K as
     filed with the Securities and Exchange Commission on January 5, 1994.
 
 (5) Incorporated by reference to the Company's Quarterly Report on Form 10-Q as
     filed with the Securities and Exchange Commission on May 9, 1994.
 
 (6) Incorporated by reference to the Company's Annual Report on Form 10-K as
     filed with the Securities and Exchange Commission on September 23, 1994.
 
                                       34

<PAGE>   35
 
 (7) Incorporated by reference to the Company's Quarterly Report on Form 10-Q as
     filed with the Securities and Exchange Commission on May 16, 1995.
 
 (8) Subject to confidentiality order dated November 21, 1988.
 
 (9) Confidential treatment requested.
 
(10) Incorporated by reference to the Company's Annual Report on Form 10-K as
     filed with the Securities and Exchange Commission on September 27, 1995.
 
     (b) Reports on Form 8-K: None.
 
                                       35

<PAGE>   36
 

                                   SIGNATURES
 
     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
 
                                          WESTERN DIGITAL CORPORATION
 
                                          By:      DUSTON M. WILLIAMS
                                              ---------------------------------
                                              Duston M. Williams
                                              Senior Vice President
                                              and Chief Financial Officer
Dated: September 16, 1996
 
     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on September 16, 1996.
 

<TABLE>
<CAPTION>
                   SIGNATURE                                        TITLE
- -----------------------------------------------  --------------------------------------------
<C>                                              <S>
              CHARLES A. HAGGERTY                Chairman of the Board, President and Chief
- -----------------------------------------------  Executive Officer (Principal Executive 
              Charles A. Haggerty                Officer)
                                                 
              DUSTON M. WILLIAMS                 Senior Vice President and Chief Financial
- ----------------------------------------------   Officer (Principal Financial and Accounting
              Duston M. Williams                 Officer)
                                                 
              JAMES A. ABRAHAMSON                Director
- ---------------------------------------------
              James A. Abrahamson

               PETER D. BEHRENDT                 Director
- ---------------------------------------------
               Peter D. Behrendt

                  I. M. BOOTH                    Director
- ---------------------------------------------
                  I. M. Booth
                                                 Director
                  I. FEDERMAN
- ---------------------------------------------
                Irwin Federman

                ANDRE R. HORN                    Director
- ---------------------------------------------
                Andre R. Horn

                ANNE O. KRUEGER                  Director
- ---------------------------------------------
                Anne O. Krueger

               THOMAS E. PARDUN                  Director
- ---------------------------------------------
               Thomas E. Pardun
</TABLE>

 
                                       36

<PAGE>   37
 

                                 EXHIBIT INDEX
 

<TABLE>
<CAPTION>
                                                                                  SEQUENTIALLY
EXHIBIT                                                                             NUMBERED
NUMBER                                 DESCRIPTION                                    PAGE
- -------   ----------------------------------------------------------------------  ------------
<S>       <C>                                                                     <C>
 3.1      Certificate of Incorporation of the Company (incorporated by reference
          to Exhibit 3.1 to the Company's Current Report on Form 8-K as filed
          with the Securities and Exchange Commission on January 15, 1987)......
 3.2.1    By-laws of the Company (incorporated by reference to Exhibit 3.2.1 to
          the Company's Current Report on Form 8-K as filed with the Securities
          and Exchange Commission on July 18, 1994).............................
 3.3      Certificate of Agreement of Merger(2).................................
 3.4      Certificate of Amendment of Certificate of Incorporation (incorporated
          by reference to Exhibit 3.1 to the Company's Registration Statement on
          Form S-3 (File No. 33-28374) as filed with the Securities and Exchange
          Commission on April 26, 1989).........................................
 4.1      Rights Agreement between the Company and First Interstate Bank, Ltd.,
          as Rights Agent, dated as of December 1, 1988 (incorporated by
          reference to Exhibit 1 to the Company's Current Report on Form 8-K as
          filed with the Securities and Exchange Commission on December 12,
          1988).................................................................
 4.2      Amendment No. 1 to Rights Agreement by and between the Company and
          First Interstate Bank, Ltd. dated as of August 10, 1990 (incorporated
          by reference to Exhibit 1 to the Company's Current Report on Form 8-K
          as filed with the Securities and Exchange Commission on August 14,
          1990).................................................................
 4.3      Certificate of Designation, Preferences and Rights of Series A Junior
          Participating Preferred Stock of the Company (incorporated by
          reference to Exhibit A of Exhibit 1 to the Company's Current Report on
          Form 8-K as filed with the Securities and Exchange Commission on
          December 12, 1988)....................................................
10.1      The Western Digital Corporation Amended and Restated Employee Stock
          Option Plan(7)**......................................................
10.3      The Registrant's 1993 Employee Stock Purchase Plan(3)**...............
10.4      Receivables Contribution and Sale Agreements, dated as of January 7,
          1994 by and between the Company, as seller, and Western Digital
          Capital Corporation, as buyer(5)......................................
10.5      Receivables Purchase Agreement, dated as of January 7, 1994, by and
          among Western Digital Capital Corporation, as seller, the Company, as
          servicer, the Financial Institutions listed therein, as bank
          purchasers and J.P. Morgan Delaware, as administrative agent(5).......
10.6      First Amendment to Receivables Purchase Agreement, dated March 23,
          1994, by and between Western Digital Corporation, as seller and the
          Financial Institutions listed therein as bank purchasers and
          administrative agents(5)..............................................
10.7      Assignment Agreement, dated as of March 23, 1994, by and between J. P.
          Morgan Delaware as Bank Purchaser and Assignor and the Bank of
          California, N.A. and the Long-term Credit Bank of Japan, LTD., Los
          Angeles Agency, as Assignees(5).......................................
10.8      Asset Purchase Agreement dated December 16, 1993 by and between
          Motorola, Inc. and Western Digital regarding the sale and purchase of
          Western Digital's wafer fabrication facilities and certain related
          assets(4).............................................................
10.10     The Western Digital Corporation Deferred Compensation Plan(6)**.......
10.11     The Western Digital Corporation Executive Bonus Plan(6)**.............
10.12     The Extended Severance Plan of the Registrant(6)**....................
</TABLE>

 
                                       37

<PAGE>   38
 

<TABLE>
<CAPTION>
                                                                                  SEQUENTIALLY
EXHIBIT                                                                             NUMBERED
NUMBER                                 DESCRIPTION                                    PAGE
- -------   ----------------------------------------------------------------------  ------------
<S>       <C>                                                                     <C>
10.13     Manufacturing Building Lease between Wan Tien Realty Pte Ltd and
          Western Digital (Singapore) Pte Ltd dated as of November 9, 1993
          (incorporated by reference to Exhibit 10.17.1 to the Company's
          Quarterly Report on Form 10-Q as filed with the Securities and
          Exchange Commission on January 25, 1994)..............................
10.15     Fiscal Year 1996 Western Digital Short-Term Bonus Plan(9)(10) **......
10.16     Western Digital Long-Term Retention Plan (10) **......................
10.17     Subleases between Wan Tien Realty Pte Ltd and Western Digital
          (Singapore) Pte Ltd dated as of September 1, 1991(1)..................
10.18     Sublease between Wan Tien Realty Pte Ltd and Western Digital
          (Singapore) Pte Ltd dated as of October 12, 1992(1)...................
10.21     The Company's Non-Employee Directors Stock-for-Fees Plan(1)**.........
10.22     Office Building Lease between The Irvine Company and the Company dated
          as of January 13, 1988 (incorporated by reference to Exhibit 10.11 to
          Amendment No. 2 to the Company's Annual Report to Form 10-K as filed
          on Form 8 with the Securities and Exchange Commission on November 18,
          1988)(8)..............................................................
10.30     The Company's Savings and Profit Sharing Plan(10) **..................
10.31     First Amendment to the Company's Savings and Profit Sharing 
          Plan(10) **...........................................................
10.32     Second Amendment to the Company's Savings and Profit Sharing 
          Plan* **..............................................................
10.33     The Company's Amended and Restated Stock Option Plan for Non-Employee
          Directors* **.........................................................
10.34     Fiscal Year 1997 Western Digital Management Incentive Plan* **........
10.35     Revolving Credit Agreement, dated as of April 24, 1996, among Western
          Digital Corporation and Nationsbank of Texas, N.A., the First National
          Bank of Boston and the other Financial Institutions listed 
          therein*..............................................................
10.36     First Amendment to the Revolving Credit Agreement, dated as of June
          27, 1996, among Western Digital Corporation and Nationsbank of Texas,
          N.A., the First National Bank of Boston and the other Financial
          Institutions listed therein *.........................................
11        Computation of Per Share Earnings.....................................
21        Subsidiaries of the Company...........................................
23        Consent of Independent Auditors.......................................
27        Financial Data Schedule...............................................
</TABLE>

 
- ---------------
 
   * New exhibit filed with this Report.
 
  ** Compensation plan, contract or arrangement required to be filed as an
     exhibit pursuant to applicable rules of the Securities and Exchange
     Commission.
 
 (1) Incorporated by reference to the Company's Annual Report on Form 10-K as
     filed with the Securities and Exchange Commission on September 28, 1992.
 
 (2) Incorporated by reference to Amendment No. 2 to the Company's Registration
     Statement on Form S-l (No. 33-54968) as filed with the Securities and
     Exchange Commission on January 26, 1993.
 
 (3) Incorporated by reference to the Company's Registration Statement on Form
     S-8 (No. 33-51725) as filed with the Securities and Exchange Commission on
     December 28, 1993.
 
 (4) Incorporated by reference to the Company's Current Report on Form 8-K as
     filed with the Securities and Exchange Commission on January 5, 1994.
 
                                       38

<PAGE>   39
 
 (5) Incorporated by reference to the Company's Quarterly Report on Form 10-Q as
     filed with the Securities and Exchange Commission on May 9, 1994.
 
 (6) Incorporated by reference to the Company's Annual Report on Form 10-K as
     filed with the Securities and Exchange Commission on September 23, 1994.
 
 (7) Incorporated by reference to the Company's Quarterly Report on Form 10-Q as
     filed with the Securities and Exchange Commission on May 16, 1995.
 
 (8) Subject to confidentiality order dated November 21, 1988.
 
 (9) Confidential treatment requested.
 
(10) Incorporated by reference to the Company's Annual Report on Form 10-K as
     filed with the Securities and Exchange Commission on September 27, 1995.
 
                                       39





<PAGE>   1
                                                                   EXHIBIT 10.32


                            SECOND AMENDMENT TO THE
                          WESTERN DIGITAL CORPORATION
                        SAVINGS AND PROFIT SHARING PLAN


This Second Amendment (the "Amendment") to the Western Digital Corporation
Savings and Profit Sharing Plan (the "Plan") made this 27th day of March, 1996
by Western Digital Corporation (the "Company") the sponsoring employer of the
Plan.

WHEREAS the terms of the Plan are set forth in an amended and restated Plan
document, dated June 23, 1995, as thereafter amended by the first amendment
dated June 30, 1995; and

WHEREAS the Company has reserved the right to amend the Plan by action of its
Board of Directors; and

WHEREAS the Company desires to amend the Plan in certain respects.

NOW, THEREFORE, the Plan is amended as follows:

1.       Section 9.7.4 is amended, effective as of the Effective Date of said
         Plan, to read in its entirety as follows:

                 9.7.4  A Hardship distribution may be considered as necessary
         to satisfy an immediate and heavy financial need of the Employee only
         if:

                          9.7.4.1.  The distribution is not in excess of the
                 amount of the Hardship need of the Participant.  The amount of
                 the Hardship need may include any amounts necessary to pay
                 federal, state, or local income taxes or penalties reasonably
                 anticipated to result from the
 distribution.

                          9.7.4.2.  The Employee has obtained all
                 distributions, other than Hardship distributions under all
                 plans maintained by the Employer, and similarly, has obtained
                 all nontaxable (at the time of the loan) loans under all plans
                 maintained by the Employer to the extent that any such loan or
                 the obligation to repay such loan would not increase the
                 amount necessary to relieve the hardship (including, but not
                 limited to the circumstance in which, in connection with a
                 withdrawal to purchase a principal residence, such loan would
                 disqualify the Participant from obtaining other necessary
                 financing in connection therewith).



<PAGE>   2
                 For purposes of determining a Hardship need, a Participant's
         resources shall be deemed to include those assets of his Spouse and
         minor children that are reasonably available to the Participant.

2.       Except as expressly provided herein above, the provisions of the Plan
         shall continue in full force and effect as set forth herein.

IN WITNESS WHEREOF, the Company has caused this Second Amendment to the Western
Digital Corporation Savings and Profit Sharing Plan to be executed by its duly
authorized officer on this 27th day of March, 1996.

                                           WESTERN DIGITAL CORPORATION



                                           By: /s/ MICHAEL A. CORNELIUS
                                              -------------------------------
                                           Name:   Michael A. Cornelius
                                           Title:  Vice President





<PAGE>   1
                                                                   EXHIBIT 10.33



                          WESTERN DIGITAL CORPORATION

                              AMENDED AND RESTATED
                             STOCK OPTION PLAN FOR
                             NON-EMPLOYEE DIRECTORS

                                   ARTICLE I
                                    GENERAL

         1.01    ADOPTION AND AMENDMENT.  This Western Digital Corporation
Amended and Restated Stock Option Plan for Non-Employee Directors (the "PLAN")
was initially adopted by the Board of Directors (the "BOARD") of Western Digital
Corporation (the "COMPANY") as of May 15, 1985 (the initial effective date of
the Plan) subject to approval of the Company's shareholders, which was obtained
at the Annual Meeting of Shareholders held on November 15, 1985.  Amendment No.
1 to the Plan was adopted by the Board as of December 6, 1985, subject to
shareholder approval, which was obtained at the Annual Meeting of Shareholders
held on November 13, 1986.  Amendment No. 2 to the Plan was adopted by the Board
as of September 22, 1987, subject to shareholder approval, which was obtained at
the Annual Meeting of Shareholders held on November 19, 1987.  Amendment No. 3
to the Plan was approved by the Board without shareholder approval on November
19, 1987.  Amendment No. 4 to the Plan was adopted by the Board as of September
22, 1988, subject to shareholder approval, which was obtained at the Annual
Meeting of Shareholders held
 on November 17, 1988.  Amendment No. 5 to the Plan
was adopted by the Board as of July 27, 1989, subject to shareholder approval,
which was obtained at the Annual Meeting of Shareholders held on November 16,
1989.  Amendment No. 6 to the Plan was adopted by the Board as of July 26, 1990,
subject to shareholder approval, which was obtained at the Annual Meeting of
Shareholders held on November 15, 1990.  Amendment No. 7 to the Plan was
approved by the Board without shareholder approval on May 23, 1991.  Amendment
No. 8 to the Plan was approved by the Board as of July 21, 1994, subject to
shareholder approval, which was obtained at the Annual Meeting of Shareholders
held on November 10, 1994.  This Amendment and Restatement of the Plan was
approved by the Board on September 7, 1995, subject to shareholder approval,
which was obtained at the Annual Meeting of Shareholders held on November 1,
1995, and is effective as of that date, provided that holders of options shall
receive Additional Options pursuant to Section 6(a) of the Plan as amended
through Amendment No. 8 thereto in respect of exercises or terminations of
Initial Options or Additional Options until December 31, 1995.  This Amendment
and Restatement of the Plan shall govern all options granted under the Plan
after the date of approval hereof by the Company's shareholders (including
Additional Options granted pursuant to the preceding sentence) and all options
granted under the Plan prior to that date, subject to any required consents of
the holders of such options; prior to or in the absence of any such consent,
options granted under the Plan as amended through Amendment No. 8 thereto will
be governed by that version of the Plan.

         1.02    ADMINISTRATION.  The Plan shall be administered by the Company,
which, subject to the express provisions of the Plan, shall have the power to
construe the Plan and any agreements or memoranda defining the rights and
obligations of the Company and option recipients, to determine all questions
arising thereunder, to adopt and amend such rules and regulations for the
administration thereof as it may deem desirable, and otherwise to carry out the
terms of the Plan and such agreements or memoranda. The interpretation and
construction by the administrator of any provisions of the Plan or of any option
granted under the Plan shall be final. Notwithstanding the foregoing, the
administrator shall have no authority or discretion as to the selection of
persons eligible to receive options granted under the Plan, the number of shares
covered by options granted under the Plan, the timing of such grants, or the
exercise price of options granted under the Plan, which matters are specifically
governed by the provisions of the Plan.

         1.03    ELIGIBLE DIRECTORS.  A person shall be eligible to receive
grants of options under the Plan (an "ELIGIBLE DIRECTOR") if, at the time of the
option's grant, he or she is a duly elected or appointed member of the Board,
but is not and has not since the beginning of the Company's most recently
completed fiscal year been (a) granted or awarded any equity securities of the
Company (including, without limitation, stock options and stock appreciation
rights) except pursuant to the Plan or a similar plan for directors of the
Company, or (b) an employee




                                       1


<PAGE>   2
of the Company or any of its affiliates or otherwise eligible for selection as
a person to whom equity securities of the Company (including, without
limitation, stock options and stock appreciation rights) may be allocated or
granted pursuant to any plan of the Company or any of its affiliates (other
than the Plan or a similar plan for directors of the Company) entitling
participants therein to acquire stock, stock options, or stock appreciation
rights of the Company or any of its affiliates.

         1.04    SHARES OF COMMON STOCK SUBJECT TO THE PLAN AND GRANT LIMIT.
The shares that may be issued upon exercise of options granted under the Plan
shall be authorized and unissued shares of the Company's Common Stock or
previously issued shares of the Company's Common Stock reacquired by the Company
and unused option shares pursuant to Section 2.06. The aggregate number of
shares that may be issued upon exercise of options granted under the Plan shall
not exceed 800,000 shares of Common Stock, subject to adjustment in accordance
with Article III.

         1.05    AMENDMENT OF THE PLAN.  The Board may, insofar as permitted by
law, from time to time suspend or discontinue the Plan or revise or amend it in
any respect whatsoever, except that no such amendment shall alter or impair or
diminish any rights or obligations under any option theretofore granted under
the Plan without the consent of the person to whom such option was granted.  In
addition, if an amendment to the Plan would increase the number of shares
subject to the Plan (as adjusted under Article III), increase the number of
shares for which an option or options may be granted to any optionee (as
adjusted under Article III), change the class of persons eligible to receive
options under the Plan, provide for the grant of options having an exercise
price per option share less than the exercise price specified in the Plan,
extend the final date upon which options may be granted under the Plan, or
otherwise materially increase the benefits accruing to participants in a manner
not specifically contemplated herein or affect the Plan's compliance with Rule
16b-3 promulgated under Section 16 of the Securities Exchange Act of 1934, as
amended (the "EXCHANGE ACT"), the amendment shall be approved by the Company's
shareholders to the extent required to comply with Rule 16b-3 under the Exchange
Act ("RULE 16B-3").  Under no circumstances may the provisions of the Plan that
provide for the amounts, price, and timing of option grants be amended more than
once every six months, other than to comport with changes in the Internal
Revenue Code, the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), or the rules thereunder.  The Plan is intended to qualify as a
formula plan under Rule 16b-3, but not to impose restrictions included in the
Plan for purposes of compliance with Rule 16b-3 if those restrictions become
unnecessary to compliance with Rule 16b-3.  Accordingly, notwithstanding the
foregoing, the administrator may administer and amend the Plan to comply with or
take advantage of changes in the rules (or interpretations thereof) promulgated
by the Securities and Exchange Commission or its staff under Section 16 of the
Exchange Act, subject to the shareholder approval requirement described above.

         1.06    TERM OF PLAN.  Options may be granted under the Plan until the
earlier to occur of May 15, 2005 or the date of a Change in Control, as defined
in Section 3.02.  In addition, no options may be granted during any suspension
of the Plan or after its termination for any reason. Notwithstanding the
foregoing, each option properly granted under the Plan shall remain in effect
until such option has been exercised or terminated in accordance with its terms
and the terms of the Plan.

         1.07    RESTRICTIONS.  All options granted under the Plan shall be
subject to the requirement that, if at any time the Company shall determine, in
its discretion, that the listing, registration or qualification of the shares
subject to options granted under the Plan upon any securities exchange or under
any state or federal law, or the consent or approval of any government or
regulatory body or authority, is necessary or desirable as a condition of, or in
connection with, the granting of such an option or the issuance, if any, or
purchase of shares in connection therewith, such option may not be exercised in
whole or in part unless such listing, registration, qualification, consent or
approval shall have been effected or obtained free of any conditions not
acceptable to the Company.  Unless the shares of stock to be issued upon
exercise of an option granted under the Plan have been effectively registered
under the Securities Act of 1933, as amended (the "SECURITIES ACT") as now in
force or hereafter amended, the Company shall be under no obligation to issue
any shares of stock covered by any option unless the person who exercises such
option, in whole or in part, shall give a written representation and undertaking
to the Company satisfactory in form and scope to counsel to the Company and upon
which, in the




                                       2


<PAGE>   3
opinion of such counsel, the Company may reasonably rely, that he or she is
acquiring the shares of stock issued to him or her pursuant to such exercise of
the option for his or her own account as an investment and not with a view to,
or for sale in connection with, the distribution of any such shares of stock,
and that he or she will make no transfer of the same except in compliance with
any rules and regulations in force at the time of such transfer under the
Securities Act, or any other applicable law or regulation, and that if shares
of stock are issued without such registration, a legend to this effect may be
endorsed upon the securities so issued and the Company may order its transfer
agent to stop transfer of such shares.

         1.08    NONASSIGNABILITY.  No option granted under the Plan shall be
assignable or transferable by the grantee except by will or by the laws of
descent and distribution or pursuant to a qualified domestic relations order or,
in the discretion of the administrator and under circumstances that would not
adversely affect the interests of the Company, as otherwise permitted by rule or
interpretation of the Securities and Exchange Commission or its staff as an
exception to the general proscription on transfer of derivative securities set
forth in Rule 16b-3 (or any successor rule) or applicable interpretations
thereof.  During the lifetime of the optionee, the option shall be exercisable
only by the optionee (or the optionee's permitted transferee) or his or her
guardian or legal representative.

         1.09    WITHHOLDING TAXES.  Whenever shares of stock are to be issued
upon exercise of an option granted under the Plan, the administrator shall have
the right to require the optionee to remit to the Company an amount sufficient
to satisfy any federal, state and local withholding tax requirements prior to
such issuance.  The administrator may, in the exercise of its discretion, allow
satisfaction of tax withholding requirements by accepting delivery of stock of
the Company or by withholding a portion of the stock otherwise issuable upon
exercise of an option.

         1.10    DEFINITION OF "FAIR MARKET VALUE."  For purposes of the Plan,
the "FAIR MARKET VALUE" of a share of stock as of a particular date shall be:
(a) if the stock is listed on an established stock exchange or exchanges
(including, for this purpose, The Nasdaq Stock Market), the last reported sale
price per share of the stock on such date on the principal exchange on which it
is traded or, if no sale was made on such date on such principal exchange, then
as of the next preceding date on which such a sale was made; or (b) if the stock
is not then listed on an exchange, the average of the closing bid and asked
prices per share for the stock in the over-the-counter market as quoted on the
NASDAQ system on such date (in the case of (a) or (b), subject to adjustment as
and if necessary and appropriate to set an exercise price not less than 100% of
the fair market value of the stock on the date an option is granted); or (c) if
the stock is not then listed on an exchange or quoted in the over-the-counter
market, an amount determined in good faith by the administrator.  The fair
market value of rights or property other than stock shall be determined by the
administrator on the basis of such factors as it may deem appropriate.

         1.11    RIGHTS AS A SHAREHOLDER.  An optionee or a permitted transferee
of an option shall have no rights as a shareholder with respect to any shares
issuable or issued upon exercise of the option until the date of the receipt by
the Company of all amounts payable in connection with exercise of the option,
including the exercise price and any amounts required pursuant to Section 1.09.


                                   ARTICLE II
                                 STOCK OPTIONS


         2.01    GRANTS OF INITIAL OPTIONS.  Each Eligible Director shall, upon
first becoming an Eligible Director, receive a one-time grant of an option to
purchase up to 20,000 shares of the Company's Common Stock at an exercise price
per share equal to the fair market value of the Company's Common Stock on the
date of grant, subject to (a) vesting as set forth in Section 2.03, and (b)
adjustment as set forth in Article III.  Options granted under this Section 2.01
are "INITIAL OPTIONS" for purposes hereof.  An Eligible Director who has
received an initial grant of stock options under the Plan or pursuant to a prior
option plan for the Company's directors shall not be eligible to receive an
Initial Option.




                                       3


<PAGE>   4
         2.02    GRANTS OF ADDITIONAL OPTIONS.  Immediately following the annual
meeting of shareholders of the Company next following an Eligible Director's
becoming an Eligible Director and immediately following each subsequent annual
meeting of shareholders of the Company, in each case if the Eligible Director
has served as a director since his or her election or appointment and has been
re-elected as a director at such annual meeting, such Eligible Director shall
automatically receive an option to purchase up to 5,000 shares of the Company's
Common Stock (an "ADDITIONAL OPTION").  In addition to the Additional Options
described above, an individual who was previously an Eligible Director and
received an initial grant of stock options under the Plan or pursuant to a prior
option plan for the Company's directors, who then ceased to be a director for
any reason, and who then again becomes an Eligible Director, shall upon again
becoming an Eligible Director automatically receive an Additional Option.  The
exercise price per share for all Additional Options shall be equal to the fair
market value of the Company's Common Stock on the date of grant, subject to (a)
vesting as set forth in Section 2.03, and (b) adjustment as set forth in Article
III.

         2.03    VESTING.  Initial Options shall vest and become exercisable in
installments of 5,000 shares on the first anniversary of the  date of grant and
1,250 shares at the end of each of the next 12 three-month periods thereafter.
Additional Options shall vest and become exercisable in installments of 1,250
shares on the first anniversary of the date of grant and 312.5 shares at the end
of each of the next 12 three-month periods thereafter.  Notwithstanding the
foregoing, however, but subject to Section 3.02, (i) Initial Options and
Additional Options will vest and become exercisable as set forth herein only if
the optionee has remained a director for the entire period from the date of
grant to the date specified herein for vesting, and (ii) Initial Options and
Additional Options that have not vested and become exercisable at the time the
optionee ceases to be a director shall terminate.

         2.04    EXERCISE.  No option shall be exercisable except in respect of
whole shares, and fractional share interests shall be disregarded.  Not less
than 100 shares of stock (or such other amount as is set forth in the applicable
option agreement or confirming memorandum) may be purchased at one time unless
the number purchased is the total number at the time available for purchase
under the terms of the option.  An option shall be deemed to be exercised when
the Secretary or other designated official of the Company receives written
notice of such exercise from or on behalf of the optionee, together with payment
of the exercise price and any amounts required under Section 1.09.  The option
exercise price shall be payable upon the exercise of an option in legal tender
of the United States or capital stock of the Company delivered in transfer to
the Company by or on behalf of the person exercising the option (duly endorsed
in blank or accompanied by stock powers duly endorsed in blank, with signatures
guaranteed in accordance with the Exchange Act if required by the administrator)
or retained by the Company from the stock otherwise issuable upon exercise or
surrender of vested and exercisable options granted to the recipient and being
exercised (in either case valued at fair market value as of the exercise date),
or such other consideration as the administrator may from time to time in the
exercise of its discretion deem acceptable in any particular instance, provided,
however, that the administrator may, in the exercise of its discretion, (a)
allow exercise of an option in a broker-assisted or similar transaction in which
the exercise price is not received by the Company until promptly after exercise,
and/or (b) allow the Company to loan the exercise price to the person entitled
to exercise the option, if the exercise will be followed by a prompt sale of
some or all of the underlying shares and a portion of the sales proceeds is
dedicated to full payment of the exercise price and amounts required pursuant to
Section 1.09.

         2.05    OPTION AGREEMENTS OR MEMORANDA.  Each option granted under the
Plan shall be evidenced by an option agreement duly executed on behalf of the
Company and by the Eligible Director to whom such option is granted or, in the
administrator's discretion, a confirming memorandum issued by the Company to the
recipient, stating the number of shares of stock issuable upon exercise of the
option and the exercise price, and setting forth explicitly or by reference to
the Plan the time during which the option is exercisable and the times at which
the options vest and become exercisable. Such option agreements or confirming
memoranda may but need not be identical and shall comply with and be subject to
the terms and conditions of the Plan, a copy of which shall be provided to each
option recipient and incorporated by reference into each option agreement or
confirming memorandum.  Any option agreement or confirming memorandum may
contain such other terms, provisions and conditions not inconsistent with the
Plan as may be determined by the administrator.




                                       4


<PAGE>   5
         2.06    TERM OF OPTIONS AND EFFECT OF TERMINATION. Notwithstanding any
other provision of the Plan, no option granted under the Plan shall be
exercisable after the expiration of ten years from the effective date of its
grant.  In the event that any outstanding option under the Plan expires by
reason of lapse of time or is otherwise terminated without exercise for any
reason, then the shares of Common Stock subject to such option that have not
been issued upon exercise of the option shall again become available in the pool
of shares of Common Stock for which options may be granted under the Plan.  In
the event that the recipient of any options granted under the Plan shall cease
to be a director of the Company for any reason, and subject to Section 3.02, all
Initial Options and Additional Options granted under the plan to such recipient
shall be exercisable, to the extent they are already exercisable at the date
such recipient ceases to be a director, for a period of 365 days after that date
(or, if sooner, until the expiration of the option according to its terms), and
shall then terminate.  In the event of the death of an optionee while such
optionee is a director of the Company or within the period after termination of
such status during which he or she is permitted to exercise an option, such
option may be exercised by any person or persons designated by the optionee on a
beneficiary designation form adopted by the administrator for such purpose or,
if there is no effective beneficiary designation form on file with the Company,
by the executors or administrators of the optionee's estate or by any person or
persons who shall have acquired the option directly from the optionee by his or
her will or the applicable laws of descent and distribution.


                                  ARTICLE III
                             CORPORATE TRANSACTIONS


         3.01    ANTI-DILUTION ADJUSTMENTS.  The number of shares of Common
Stock available for issuance upon exercise of options granted under the Plan,
the number of shares for which each outstanding option can be exercised, and the
exercise price per share of options shall be appropriately and proportionately
adjusted for any increase or decrease in the number of issued and outstanding
shares of Common Stock resulting from a subdivision or consolidation of shares
or the payment of a stock dividend or any other increase or decrease in the
number of issued and outstanding shares of capital stock of the Company effected
without receipt of consideration by the Company. No fractional interests will be
issued under the Plan resulting from any such adjustments.

         3.02    REORGANIZATIONS; MERGERS; CHANGES IN CONTROL. Subject to the
other provisions of this Section 3.02, if the Company shall consummate any
reorganization or merger or consolidation in which holders of shares of the
Company's Common Stock are entitled to receive in respect of such shares any
other consideration (including, without limitation, a different number of such
shares), each option outstanding under the Plan shall thereafter be exercisable,
in accordance with the Plan, only for the kind and amount of securities, cash
and/or other property receivable upon such reorganization or merger or
consolidation by a holder of the same number of shares of Common Stock as are
subject to that option immediately prior to such reorganization or merger or
consolidation, and any appropriate adjustments will be made to the exercise
price thereof.  In addition, if a Change in Control occurs and in connection
with such Change in Control any recipient of an option granted under the Plan
ceases to be a director of the Company, then such recipient shall have the right
to exercise his or her options granted under the Plan in whole or in part during
the applicable time period provided in Section 2.06 without regard to any
vesting requirements.  For purposes hereof, but without limitation, a director
will be deemed to have ceased to be a director of the Company in connection with
a Change in Control if such director (i) is removed by or resigns upon request
of a Person (as defined in paragraph (a) below) exercising practical voting
control over the Company following the Change in Control or a person acting upon
authority or at the instruction of such  Person, or (ii) is willing and able to
continue as a director of the Company but is not re-elected to or retained on
the Board by the Company's shareholders through the shareholder vote or consent
action for election of directors that precedes and is taken in connection with,
or next follows, the Change in Control.  For purposes hereof, a "CHANGE IN
CONTROL" means the following and shall be deemed to occur if any of the
following events occurs:

               (a)   Any person, entity or group, within the meaning of Section
                     13(d) or 14(d) of the Exchange Act, but excluding the
                     Company and its subsidiaries and any employee benefit or
                     stock ownership plan of the Company or its subsidiaries and
                     also excluding an underwriter or underwriting syndicate
                     that has acquired the Company's securities solely




                                       5


<PAGE>   6
                     in connection with a public offering thereof (such person,
                     entity or group being referred to herein as a "PERSON"),
                     becomes the beneficial owner (within the meaning of Rule
                     13d-3 promulgated under the Exchange Act) of 50% or more of
                     either the then outstanding shares of Common Stock or the
                     combined voting power of the Company's then outstanding
                     securities entitled to vote generally in the election of
                     directors; or

               (b)   Individuals who, as of the effective date hereof,
                     constitute the Board cease for any reason to constitute at
                     least a majority of the Board, provided that any individual
                     who becomes a director after the effective date hereof
                     whose election, or nomination for election by the Company's
                     shareholders, is approved by a vote of at least a majority
                     of the directors then comprising the Incumbent Board shall
                     be considered to be a member of the Incumbent Board unless
                     that individual was nominated or elected by any Person
                     having the power to exercise, through beneficial ownership,
                     voting agreement and/or proxy, 20% or more of either the
                     then outstanding shares of Common Stock or the combined
                     voting power of the Company's then outstanding voting
                     securities entitled to vote generally in the election of
                     directors, in which case that individual shall not be
                     considered to be a member of the Incumbent Board unless
                     such individual's election or nomination for election by
                     the Company's shareholders is approved by a vote of at
                     least two-thirds of the directors then comprising the
                     Incumbent Board; or

               (c)   Consummation by the Company of the sale or other
                     disposition by the Company of all or substantially all of
                     the Company's assets or a reorganization or merger or
                     consolidation of the Company with any other person, entity
                     or corporation, other than

                           (i)   a reorganization or merger or consolidation
                                 that would result in the voting securities of
                                 the Company outstanding immediately prior
                                 thereto (or, in the case of a reorganization or
                                 merger or consolidation that is preceded or
                                 accomplished by an acquisition or series of
                                 related acquisitions by any Person, by tender
                                 or exchange offer or otherwise, of voting
                                 securities representing 5% or more of the
                                 combined voting power of all securities of the
                                 Company, immediately prior to such acquisition
                                 or the first acquisition in such series of
                                 acquisitions) continuing to represent, either
                                 by remaining outstanding or by being converted
                                 into voting securities of another entity, more
                                 than 50% of the combined voting power of the
                                 voting securities of the Company or such other
                                 entity outstanding immediately after such
                                 reorganization or merger or consolidation (or
                                 series of related transactions involving such a
                                 reorganization or merger or consolidation), or

                          (ii)   a reorganization or merger or consolidation
                                 effected to implement a recapitalization or
                                 reincorporation of the Company (or similar
                                 transaction) that does not result in a material
                                 change in beneficial ownership of the voting
                                 securities of the Company or its successor; or

               (d)   Approval by the shareholders of the Company or an order
                     by a court of competent jurisdiction of a plan of
                     liquidation of the Company.

         3.03    DETERMINATION BY THE COMPANY.  To the extent that the foregoing
adjustments relate to stock or securities of the Company, such adjustments shall
be made by the administrator, whose determination in that respect shall be
final, binding and conclusive.  The grant of an option pursuant to the Plan
shall not affect in any way the right or power of the Company to make
adjustments, reclassifications, reorganizations or changes of its capital or
business structure or to merge, consolidate, dissolve, or liquidate or to sell
or transfer all or any part of its business or assets.

                                     # # #



                                       6




<PAGE>   1
                                                                 EXHIBIT 10.34

                                FISCAL YEAR 1997
                                ----------------
                WESTERN DIGITAL MANAGEMENT INCENTIVE PLAN (MIP)
                -----------------------------------------------

                                PURPOSE
                                ------------------------------------------------
                                
                                The purpose of this Plan is to focus
                                participants on achieving key financial and
                                strategic objectives at the corporate and
                                business group levels that will lead to the
                                creation of value for the Company's
                                shareholders and provide participants the
                                opportunity to earn significant awards,
                                commensurate with performance.

                                ELIGIBILITY
                                ------------------------------------------------
                                
                                Plan eligibility is extended to all employees
                                of Western Digital and selected employees of
                                its domestic subsidiaries who are in, or who
                                are hired into, salary grades 68 and above (or
                                equivalent) on or before January 6, 1997.

                                Eligibility may be granted to employees who
                                have an authorized written agreement that
                                grants them eligibility.

                                Employees of Western Digital and its domestic
                                subsidiaries who are in salary grades 67 or
                                below (or equivalent) are eligible for awards
                                generated by a secondary bonus pool.

                                DESCRIPTION OF THE PLAN
                                ------------------------------------------------
                                
                                The 1997 Management Incentive Plan will pay a
                                combination of cash and deferred awards to
                                participants for the achievement of
                                predetermined performance goals.  Each
                                participant will be assigned a pool or target
                                bonus percentage, which when multiplied
 by the
                                participant's annual base salary as of  June
                                30, 1997, will determine the pool or target
                                bonus payout.

                                Predetermined performance goals will be
                                established and approved by the Compensation
                                Committee of the Board of Directors before the
                                end of the first quarter of the fiscal year.

                                The actual performance achieved will determine
                                the percentage used to calculate the award at
                                the end of the plan year.  The size of the
                                actual award can vary between 0% and 200% of
                                the pool or target award.

                                In addition, individual awards may be adjusted
                                upward or downward by the Chief Executive
                                Officer from the amount generated by the
                                formula.  The Chief Executive Officer's award
                                may be adjusted upward or downward by the
                                Compensation Committee.]


                                      
                                      
                                      -1-



<PAGE>   2
                                OPERATION OF THE PLAN
                                ------------------------------------------------
                                
Plan Year:                      July 1, 1996 to June 30, 1997

Award Opportunities:            The award for participants will be expressed as
                                a percentage of salary, and determined
                                according to salary grade.

1997 Goals and Weighting:       Each business group will have goals at the
                                corporate and/or business group level, and each
                                goal will have an assigned weighting.

                                The percentage of target bonus opportunity
                                earned (before discretionary adjustments) will
                                vary from the target bonus opportunity based on
                                actual performance achieved relative to the
                                performance goals.

                                ADDITIONAL PROVISIONS
                                ------------------------------------------------
                                
Award Thresholds:               Corporate operating profit must be at least 50%
                                of the Annual Operating Plan for incentives to
                                be paid under any aspect of the Plan.

                                In addition each business group will have a
                                predetermined operating profit threshold below
                                which no incentive payments can occur for that
                                business group.

Total Award Cap:                Total awards paid under this Plan may not
                                exceed a preset percentage of corporate
                                operating profit as determined by the
                                Compensation Committee.  Any award reductions
                                attributable to the preset percentage cap will
                                be made by the Chief Executive Officer.

Award Adjustment:               Group award levels may be adjusted upward or
                                downward by up to 25% by the Chief Executive
                                Officer.

                                After application of the group performance,
                                individual awards may be adjusted upward or
                                downward based on the adjustment table below.
                                Approval from the Chief Executive Officer is
                                required for adjustments outside of these
                                limits.  The Chief Executive Officer's award
                                may be adjusted upward or downward by the
                                Compensation Committee.  The adjustments by
                                salary grade level (or equivalent) are as
                                follows:


<TABLE>
<CAPTION>
                                      Salary Grade                   Upward                      Downward
                                    (or equivalent)                Adjustment                   Adjustment
                                -------------------------     --------------------           -----------------
                                      <S>                      <C>                           <C> 
                                      68, 69 & 84                    +100%  (1)                   -100%  (1)
                                       All others                     +40%                         -40%
</TABLE>


                                (1)   The adjustment factors are higher for
                                      those in salary grades 68, 69 and 84
                                      since these individuals also participate
                                      in Western Digital's Profit Sharing Plan.





                                      -2-

<PAGE>   3
                                All awards under this Plan are discretionary.
                                The amount of the award including adjustments
                                is determined by Western Digital in its sole
                                discretion.  No employee has any contractual
                                right to receive an award pursuant to this Plan
                                due to his/her employment at Western Digital.

Extraordinary Events:           The Compensation Committee, in its discretion,
                                may adjust the basis upon which performance is
                                measured to reflect the effect of significant
                                changes that include, but are not limited to,
                                unbudgeted acquisitions/divestitures, unusual
                                or extraordinary accounting items, or
                                significant, unplanned changes in the economic
                                or regulatory environment.

Termination:                    Participants must be employed by the Company at
                                the end of the plan year to receive an award.
                                If a participant terminates for reason of
                                retirement, total and permanent disability, or
                                death, the Compensation Committee has the
                                discretion to pay prorated awards based upon
                                the percentage of the year worked.

Partial Year                    The Compensation Committee, in its discretion,
Participation:                  may pay prorated awards to people hired or
                                promoted into eligible positions after 
                                July 1, 1996.

Deferred Payout:                At the beginning of the plan year, the
                                participant may elect to defer payout of all or
                                part of the award in accordance with Western
                                Digital's Deferred Compensation Plan.  The
                                deferred amount will be credited with a rate as
                                specified in the Western Digital's Deferred
                                Compensation Plan.

Payout of Award:                Awards will be paid in cash as soon as possible
                                following the end of the plan year or according
                                to the participant's deferral election.  In
                                addition, an amount will be deducted from the
                                award and contributed to Western Digital's
                                Savings and Profit Sharing Plan.  This amount
                                will be based upon a percentage of salary.
                                This percentage will be the same as that used
                                by all participants in the Western Digital
                                Profit Sharing Plan.

Secondary Pool:                 Secondary award pools will be created for
                                employees in salary grades 67 or below (or
                                equivalent) for all corporate and business
                                groups.

                                Management has the discretion to award any one
                                individual up a maximum of 10% of salary.
                                Approval of the CEO is required for discretion
                                outside this limit.

                                The intent of this pool is to allow for the top
                                10% of the remaining population to receive 5%
                                of their salary as a bonus.





                                      -3-



<PAGE>   1
                                                                   EXHIBIT 10.35

                                REVOLVING CREDIT
                                    AGREEMENT



                           Dated as of April 24, 1996

                                      among

                          WESTERN DIGITAL CORPORATION,
                           NATIONSBANK OF TEXAS, N.A.,
                       THE FIRST NATIONAL BANK OF BOSTON
          and the other lending institutions listed on Schedule 1 hereto



                                       and



                           NATIONSBANK OF TEXAS, N.A.
                              as Syndication Agent

                                       and

                        THE FIRST NATIONAL BANK OF BOSTON
                                       as
                              Administrative Agent

                                      with

                        NATIONSBANC CAPITAL MARKETS, INC.
                                       and
                        THE FIRST NATIONAL BANK OF BOSTON
                 having acted as arrangers for this transaction

<PAGE>   2
                                TABLE OF CONTENTS

1.  DEFINITIONS AND RULES OF INTERPRETATION....................................1
      1.1.  Definitions........................................................1
      1.2.  Rules of Interpretation...........................................13
2.  THE REVOLVING CREDIT FACILITY.............................................14
      2.1.  Commitment to Lend; Extension of Maturity.........................14
               2.1.1.  Commitment to Lend.....................................14
               2.1.2.  Extension of Maturity..................................14
               2.1.3.  Replacement Banks......................................15
      2.2.  Commitment Fee....................................................16
      2.3.  Reduction of Total Commitment.....................................16
      2.4.  The Revolving Credit Notes........................................17
      2.5.  Interest on Revolving Credit Loans................................17
      2.6.  Requests for Revolving Credit Loans...............................18
      2.7.  Conversion Options................................................18
               2.7.1.  Conversion to Different Type of Revolving Credit Loan..18
               2.7.2.  Continuation of Type of Revolving Credit Loan..........19
               2.7.3.  Eurodollar Rate Loans..................................19
      2.8.  Funds for Revolving Credit Loan...................................19
               2.8.1.  Funding Procedures.....................................19
               2.8.2.  Advances by Agent......................................20
3.  REPAYMENT OF THE REVOLVING CREDIT
 LOANS...................................20
      3.1.  Maturity.  .......................................................20
      3.2.  Mandatory Repayments of Revolving Credit Loans....................20
      3.3.  Optional Repayments of Revolving Credit Loans.....................21
4.  LETTERS OF CREDIT.........................................................21
      4.1.  Letter of Credit Commitments......................................21
               4.1.1.  Commitment to Issue Letters of Credit..................21
               4.1.2.  Letter of Credit Applications..........................22
               4.1.3.  Terms of Letters of Credit.............................22
               4.1.4.  Reimbursement Obligations of Banks.....................22
               4.1.5.  Participations of Banks................................23
      4.2.  Reimbursement Obligation of the Borrower..........................23
      4.3.  Letter of Credit Payments.........................................23
      4.4.  Obligations Absolute..............................................24
      4.5.  Reliance by Issuer................................................25
      4.6.  Letter of Credit Fee..............................................25
5.  CERTAIN GENERAL PROVISIONS................................................25
      5.1.  Arrangement Fee...................................................25
      5.2.  Administration Fee................................................25
      5.3.  Funds for Payments................................................25
               5.3.1.  Payments to Agent......................................25
               5.3.2.  No Offset, etc.........................................26
      5.4.  Computations......................................................26
      5.5.  Inability to Determine Eurodollar Rate............................26

<PAGE>   3
                                      -ii

         5.6.  Illegality.....................................................27
         5.7.  Additional Costs, etc..........................................27
         5.8.  Capital Adequacy...............................................28
         5.9.  Certificate....................................................29
         5.10.  Indemnity.....................................................29
         5.11.  Interest After Default........................................29
                  5.11.1.  Overdue Amounts....................................29
                  5.11.2.  Amounts Not Overdue................................30
6.  GUARANTIES................................................................30
         6.1.  Guaranties of Domestic Subsidiaries............................30
         6.2.  New Domestic Subsidiaries......................................30
7.  REPRESENTATIONS AND WARRANTIES............................................30
         7.1.  Corporate Authority............................................30
                  7.1.1.  Incorporation; Good Standing........................30
                  7.1.2.  Authorization.......................................30
                  7.1.3.  Enforceability......................................31
         7.2.  Governmental Approvals.........................................31
         7.3.  Title to Properties; Leases....................................31
         7.4.  Financial Statements and Projections...........................31
                  7.4.1.  Financial Statements................................31
                  7.4.2.  Projections.........................................32
         7.5.  No Material Changes, etc.......................................32
         7.6.  Franchises, Patents, Copyrights, etc...........................32
         7.7.  Litigation.....................................................32
         7.8.  No Materially Adverse Contracts, etc...........................33
         7.9.  Compliance with Other Instruments, Laws, etc...................33
         7.10.  Tax Status....................................................33
         7.11.  No Event of Default...........................................33
         7.12.  Holding Company and Investment Company Acts...................33
         7.13.  Absence of Financing Statements, etc..........................34
         7.14.  Certain Transactions..........................................34
         7.15.  Employee Benefit Plans........................................34
                  7.15.1.  In General.........................................34
                  7.15.2.  Terminability of Welfare Plans.....................34
                  7.15.3.  Guaranteed Pension Plans...........................35
                  7.15.4.  Multiemployer Plans................................35
         7.16.  Regulations U and X...........................................35
         7.17.  Environmental Compliance......................................35
         7.18.  Subsidiaries, etc.............................................37
         7.19.  Chief Executive Office........................................37
         7.20.  Fiscal Year...................................................37
         7.21.  Disclosure....................................................38
         7.22.  Insurance.....................................................38
8.  AFFIRMATIVE COVENANTS OF THE BORROWER.....................................38
         8.1.  Punctual Payment...............................................38
         8.2.  Maintenance of Office..........................................38
         8.3.  Records and Accounts...........................................38

<PAGE>   4
                                     -iii-

         8.4.  Financial Statements, Certificates and Information.............39
         8.5.  Notices........................................................40
                  8.5.1.  Defaults............................................40
                  8.5.2.  Environmental Events................................40
                  8.5.3.  Notice of Litigation and Judgments..................40
         8.6.  Corporate Existence; Maintenance of Properties.................41
         8.7.  Insurance......................................................41
         8.8.  Taxes..........................................................41
         8.9.  Inspection of Properties and Books, etc........................42
                  8.9.1.  General.............................................42
                  8.9.2.  Appraisals; Commercial Finance Examinations.........42
                  8.9.3.  Communications with Accountants.....................42
         8.10.  Compliance with Laws, Contracts, Licenses, and Permits........43
         8.11.  Employee Benefit Plans........................................43
         8.12.  Use of Proceeds...............................................43
         8.13.  Further Assurances............................................43
9.  CERTAIN NEGATIVE COVENANTS OF THE BORROWER................................44
         9.1.  Restrictions on Indebtedness...................................44
         9.2.  Restrictions on Liens..........................................45
         9.3.  Restrictions on Investments....................................46
         9.4.  Distributions.  ...............................................47
         9.5.  Merger, Consolidation and Disposition of Assets................47
                  9.5.1.  Mergers and Acquisitions............................47
                  9.5.2.  Disposition of Assets...............................48
         9.6.  Sale and Leaseback.............................................48
         9.7.  Compliance with Environmental Laws.............................48
         9.8.  Employee Benefit Plans.........................................49
         9.9.  Changes in Terms of Capital Stock..............................49
         9.10.  Fiscal Year...................................................49
         9.11.  Negative Pledges..............................................50
         9.12.  Transactions with Affiliates..................................50
         9.13.  Upstream Limitations..........................................50
         9.14.  Inconsistent Agreements.......................................50
10.  FINANCIAL COVENANTS OF THE BORROWER......................................50
         10.1.  Profitable Operations.........................................50
         10.2.  Fixed Rate Coverage Ratio.....................................51
         10.3.  Minimum Liquidity.............................................51
         10.4.  Consolidated Net Worth........................................51
11.  CLOSING CONDITIONS.......................................................51
         11.1.  Loan Documents................................................51
         11.2.  Certified Copies of Charter Documents.........................51
         11.3.  Corporate, Action.............................................51
         11.4.  Incumbency Certificate........................................52
         11.5.  Certificates of Insurance.....................................52
         11.6.  Solvency Certificate..........................................52
         11.7.  Opinion of Counsel............................................52
         11.8.  Payment of Fees...............................................52

<PAGE>   5
                                      -iv-

       11.9.  Termination of Receivables Financing............................52
12.  CONDITIONS TO ALL BORROWINGS.............................................52
       12.1.  Representations True; No Event of Default.......................53
       12.2.  No Legal Impediment.............................................53
       12.3.  Governmental Regulation.........................................53
       12.4.  Proceedings and Documents.......................................53
13.  EVENTS OF DEFAULT; ACCELERATION; ETC.....................................53
       13.1.  Events of Default and Acceleration..............................53
       13.2.  Termination of Commitments......................................57
       13.3.  Remedies........................................................57
14.  SETOFF...................................................................57
15.  THE BANK AGENTS..........................................................58
       15.1.  Authorization...................................................58
       15.2.  Employees and Agents............................................59
       15.3.  No Liability....................................................59
       15.4.  No Representations..............................................59
       15.5.  Payments........................................................60
                15.5.1.  Payments to Agent....................................60
                15.5.2.  Distribution by Agent................................60
                15.5.3.  Delinquent Banks.....................................60
       15.6.  Holders of Notes................................................61
       15.7.  Indemnity.......................................................61
       15.8.  Bank Agents as Bank.............................................61
       15.9.  Resignation.....................................................61
       15.10.  Notification of Defaults and Events of Default.................62
16.  EXPENSES.................................................................62
17.  INDEMNIFICATION..........................................................63
18.  SURVIVAL OF COVENANTS, ETC...............................................63
19.  ASSIGNMENT AND PARTICIPATION; ACCESSION..................................64
       19.1.  Conditions to Assignment and Accession..........................64
                19.1.1.  Assignment by Banks..................................64
                19.1.2.  Accession............................................64
       19.2.  Certain Representations and Warranties; Limitations; Covenants..65
       19.3.  Register........................................................66
       19.4.  New Notes.......................................................67
       19.5.  Participations..................................................67
       19.6.  Disclosure......................................................68
       19.7.  Assignee or Participant Affiliated with the Borrower............68
       19.8.  Miscellaneous Assignment Provisions.............................68
       19.9.  Assignment by Borrower..........................................69
20.  NOTICES, ETC.............................................................69
21.  GOVERNING LAW............................................................70
22.  HEADINGS.................................................................70
23.  COUNTERPARTS.............................................................70
24.  ENTIRE AGREEMENT, ETC....................................................70
25.  WAIVER OF JURY TRIAL.....................................................70

<PAGE>   6
                                      -v-

26.  CONSENTS, AMENDMENTS, WAIVERS, ETC.......................................71
27.  SEVERABILITY.............................................................72

<PAGE>   7
                             SCHEDULES AND EXHIBITS


                                    EXHIBITS

Exhibit A                 Form of Revolving Credit Note
Exhibit B                 Form of Loan Request
Exhibit C                 Form of Compliance Certificate
Exhibit D                 Form of Assignment and Acceptance
Exhibit E                 Form of Instrument of Accession

                                    SCHEDULES

Schedule 1                Commitments
Schedule 7.3              Titles to Properties
Schedule 7.7              Litigation
Schedule 7.14             Transactions with Affiliates
Schedule 7.17             Environmental Matters
Schedule 7.18             Subsidiaries; Joint Ventures
Schedule 7.22             Insurance
Schedule 9.1              Existing Indebtedness
Schedule 9.2              Existing Liens
Schedule 9.3              Existing Investments

<PAGE>   8
                                REVOLVING CREDIT
                                    AGREEMENT

         This REVOLVING CREDIT AGREEMENT is made as of April 24, 1996, by and
among (a) WESTERN DIGITAL CORPORATION (the "Borrower"), a Delaware corporation
having its principal place of business at 8105 Irvine Center Drive, Irvine,
California 92718, (b) NATIONSBANK OF TEXAS, N.A., THE FIRST NATIONAL BANK OF
BOSTON, and the other lending institutions listed on Schedule 1 hereto, (c)
NATIONSBANK OF TEXAS, N.A., as syndication agent for the Banks (as hereinafter
defined)(the "Syndication Agent") and (d) THE FIRST NATIONAL BANK OF BOSTON as
administrative agent for the Banks (the "Agent" and, collectively with the
Syndication Agent, the "Bank Agents").

                   1. DEFINITIONS AND RULES OF INTERPRETATION.

         1.1. DEFINITIONS. The following terms shall have the meanings set forth
in this Section 1 or elsewhere in the provisions of this Credit Agreement
referred to below:

         Acceding Bank.  See Section 19.1.2 hereof.

         Accounts Receivable. All rights of the Borrower or any of its
Subsidiaries to payment for goods sold, leased or otherwise marketed in the
ordinary course of business and all rights of the Borrower or any of its
Subsidiaries to payment for services rendered in the ordinary course of business
and all sums of money or other proceeds due thereon pursuant to transactions
with account debtors, except for that portion of the sum of money or other
proceeds due thereon that relate to sales, use or property taxes in conjunction
with such transactions, recorded on books of account in accordance with
generally accepted accounting principles.

         Adjustment Date. The first day of the month immediately following the
month in which a Compliance Certificate is to be delivered by the Borrower
pursuant to Section 8.4(c).

         Affiliate. Any Person that would be considered to be an affiliate of
the Borrower under Rule 144(a) of the Rules and Regulations of the Securities
and Exchange Commission, as in effect on the date hereof, if the Borrower were
issuing securities.

         Agent's Head Office. The Agent's head office located at 100 Federal
Street, Boston, Massachusetts 02110, or at such other location as the Agent may
designate from time to time.

<PAGE>   9
                                      -2-


         Agent. As defined in the preamble hereto.

         Applicable Margin. For each period commencing on an Adjustment Date
through the date immediately preceding the next Adjustment Date (each a "Rate
Adjustment Period"), the Applicable Margin shall be the applicable margin set
forth below with respect to the Borrower's Fixed Charge Coverage Ratio as
determined for the fiscal period of the Borrower ending on the fiscal quarter
ended immediately preceding the applicable Rate Adjustment Period.


<TABLE>
<CAPTION>
     ------------------------------------------------------------------------------------------------
                                       BASE RATE     EURODOLLAR RATE    COMMITMENT       LETTER OF
     FIXED CHARGE COVERAGE RATIO         LOANS            LOANS          FEE RATE       CREDIT FEES
                                     (BASIS POINTS)   (BASIS POINTS)  (BASIS POINTS)   (BASIS POINTS)
     ================================================================================================
<S>                                  <C>             <C>              <C>              <C>
     Less than 3.00:1.00                   0               100              30              100
     ------------------------------------------------------------------------------------------------
     Greater than or equal to
     3.00:1.00, but less than              0                75              25               75
     4.00:1.00
     ------------------------------------------------------------------------------------------------
     Greater than or equal to              0                50              20               50
     4.00:1.00
     ------------------------------------------------------------------------------------------------
</TABLE>


         Notwithstanding the foregoing, (a) for Revolving Credit Loans
outstanding and Letter of Credit Fees and the Commitment Fee Rate payable during
the period commencing on the Closing Date through the date immediately preceding
the first Adjustment Date to occur after September 30, 1996, the Applicable
Margin shall be the second to the highest Applicable Margin set forth above, and
(b) if the Borrower fails to deliver any Compliance Certificate when required by
Section 8.4(c) hereof then, for the period commencing on the next Adjustment
Date to occur subsequent to such failure through the date immediately following
the date on which such Compliance Certificate is delivered, the Applicable
Margin shall be the highest Applicable Margin set forth above.

         Assignment and Acceptance. See Section 19.1.

         Balance Sheet Date. December 30, 1995.

         Bank Agents. As defined in the preamble hereto.

         Bank Agents' Special Counsel. Bingham, Dana & Gould LLP or such other
counsel as may be approved by the Bank Agents.

         Banks. NationsBank, FNBB and the other lending institutions listed on
Schedule 1 hereto and any other Person who becomes an assignee of any rights and
obligations of a Bank pursuant to Section 19 or which becomes an Acceding Bank
pursuant to Section 19 hereof.

         Base Rate. The higher of (a) the annual rate of interest announced from
time to time by FNBB at its head office in Boston, Massachusetts, as its "base
rate" and (b) one-half of one percent (1/2%) above the Federal Funds Effective
Rate. For the purposes of this definition, "Federal Funds Effective Rate" shall

<PAGE>   10
                                      -3-


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

         Base Rate Loans. Revolving Credit Loans bearing interest calculated by
reference to the Base Rate.

         Borrower. As defined in the preamble hereto.

         Business Day. Any day on which banking institutions in each of the
cities in which each Bank's Domestic Lending Office is located are open for the
transaction of banking business and, in the case of Eurodollar Rate Loans, also
a day which is a Eurodollar Business Day.

         Capital Assets. Fixed assets, both tangible (such as land, buildings,
fixtures, machinery and equipment) and intangible (such as patents, copyrights,
trademarks, franchises and good will); provided that Capital Assets shall not
include any item customarily charged directly to expense or depreciated over a
useful life of twelve (12) months or less in accordance with generally accepted
accounting principles.

         Capital Expenditures. Amounts paid or indebtedness incurred by the
Borrower or any of its Subsidiaries in connection with the purchase or lease by
the Borrower or any of its Subsidiaries of Capital Assets that would be required
to be capitalized and shown on the balance sheet of such Person in accordance
with generally accepted accounting principles; provided, however, for purposes
of this Credit Agreement, Capitalized Leases shall not be included as Capital
Expenditures.

         Capitalized Leases. Leases under which the Borrower or any of its
Subsidiaries is the lessee or obligor, the discounted future rental payment
obligations under which are required to be capitalized on the balance sheet of
the lessee or obligor in accordance with generally accepted accounting
principles.

         CERCLA. See Section 7.17.

         Closing Date. The first date on which the conditions set forth in
Section 11 have been satisfied and any Revolving Credit Loans are to be made or
any Letter of Credit is to be issued hereunder.

         Code. The Internal Revenue Code of 1986.

<PAGE>   11
                                      -4-


         Commitment. With respect to each Bank, the amount set forth on Schedule
1 hereto as the amount of such Bank's commitment to make Revolving Credit Loans
to, and to participate in the issuance, extension and renewal of Letters of
Credit for the account of, the Borrower, as the same may be modified pursuant to
Section 19.1.2 hereof, and as the same may be reduced from time to time; or if
such commitment is terminated pursuant to the provisions hereof, zero.

         Commitment Fee. See Section 2.2.

         Commitment Fee Rate. As referred to as such in the table contained in
the definition of Applicable Margin.

         Commitment Percentage. With respect to each Bank, the percentage set
forth on Schedule 1 hereto as such Bank's percentage of the aggregate
Commitments of all of the Banks.

         Compliance Certificate. See Section 8.4(c).

         Consolidated or consolidated. With reference to any term defined
herein, shall mean that term as applied to the accounts of the Borrower and its
Subsidiaries, consolidated in accordance with generally accepted accounting
principles.

         Consolidated Net Income (or Deficit). The consolidated net income (or
deficit) of the Borrower and its Subsidiaries, after deduction of all expenses,
taxes, and other proper charges, determined in accordance with generally
accepted accounting principles.

         Consolidated Net Operating Income (or Deficit). Consolidated Net Income
(or Deficit), after eliminating therefrom all extraordinary nonrecurring items
of income or loss.

         Consolidated Net Worth. The excess of Consolidated Total Assets over
Consolidated Total Liabilities, less, to the extent otherwise includable in the
computations of Consolidated Net Worth, any subscriptions receivable.

         Consolidated Total Assets. All assets of the Borrower and its
Subsidiaries determined on a consolidated basis in accordance with generally
accepted accounting principles.

         Consolidated Total Interest Expense. For any period, the aggregate
amount of interest required to be paid or accrued by the Borrower and its
Subsidiaries during such period on all Indebtedness of the Borrower and its
Subsidiaries outstanding during all or any part of such period, whether such
interest was or is required to be reflected as an item of expense or
capitalized, including payments consisting of interest in respect of Capitalized
Leases and including commitment fees, agency fees, facility fees, balance
deficiency fees and similar fees or expenses in connection with the borrowing of
money.

<PAGE>   12
                                      -5-


         Consolidated Total Liabilities. All liabilities of the Borrower and its
Subsidiaries determined on a consolidated basis in accordance with generally
accepted accounting principles and all Indebtedness of the Borrower and its
Subsidiaries, whether or not so classified.

         Conversion Request. A notice given by the Borrower to the Agent of the
Borrower's election to convert or continue a Revolving Credit Loan in accordance
with Section 2.7.

         Credit Agreement. This Revolving Credit Agreement, including the
Schedules and Exhibits hereto.

         Current Accounts Receivable. All Accounts Receivable of the Borrower
and its Subsidiaries on a consolidated basis that, in accordance with generally
accepted accounting principles, are properly classified as current assets,
provided that such Accounts Receivable shall be included only if good and
collectible as determined by the Borrower in accordance with established
practice consistently applied and only if payable and outstanding not more than
ninety (90) days after the date of the shipment of goods or other transaction
out of which any such account receivable arose; and such Accounts Receivable
shall be taken at their face value less reserves determined to be sufficient in
accordance with generally accepted accounting principles.

         Declining Bank. See Section 2.1.2.

         Default. See Section 13.1.

         Distribution. The declaration or payment of any dividend on or in
respect of any shares of any class of capital stock of the Borrower, other than
dividends payable solely in shares of common stock of the Borrower; the
purchase, redemption, or other retirement of any shares of any class of capital
stock of the Borrower, directly or indirectly through a Subsidiary of the
Borrower or otherwise; the return of capital by the Borrower to its shareholders
as such; or any other distribution on or in respect of any shares of any class
of capital stock of the Borrower.

         Dollars or $. Dollars in lawful currency of the United States of
America.

         Domestic Lending Office. Initially, the office of each Bank designated
as such in Schedule 1 hereto; thereafter, such other office of such Bank, if
any, located within the United States that will be making or maintaining Base
Rate Loans.

         Domestic Subsidiary. Any Subsidiary of the Borrower which is not a
Foreign Subsidiary.

<PAGE>   13
                                      -6-


         Drawdown Date. The date on which any Revolving Credit Loan is made or
is to be made, and the date on which any Revolving Credit Loan is converted or
continued in accordance with Section 2.7.

         EBITDA. With respect to the Borrower and its Subsidiaries for any
fiscal period, an amount equal to Consolidated Net Income for such period, plus,
to the extent deducted in the calculation of Consolidated Net Income and without
duplication, (a) depreciation for such period, (b) other amortization for such
period, (c) income tax expense for such period and (d) Consolidated Total
Interest Expense paid or accrued during such period, all as determined in
accordance with generally accepted accounting principles.

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

         Employee Benefit Plan. Any employee benefit plan within the meaning of
Section 3(3) of ERISA maintained of contributed to by the Borrower or any ERISA
Affiliate, other than a Multiemployer Plan.

         Environmental Laws. See Section 7.17(a).

         ERISA. The Employee Retirement Income Security Act of 1974.

         ERISA Affiliate. Any Person which is treated as a single employer with
the Borrower under Section 414 of the Code.

         ERISA Reportable Event. A reportable event with respect to a Guaranteed
Pension Plan within the meaning of Section 4043 of ERISA and the regulations
promulgated thereunder as to which the requirement of notice has not been
waived.

<PAGE>   14
                                      -7-


         Eurocurrency Reserve Rate. For any day with respect to a Eurodollar
Rate Loan, the maximum rate (expressed as a decimal) at which any lender subject
thereto would be required to maintain reserves under Regulation D of the Board
of Governors of the Federal Reserve System (or any successor or similar
regulations relating to such reserve requirements) against "Eurocurrency
Liabilities" (as that term is used in Regulation D), if such liabilities were
outstanding. The Eurocurrency Reserve Rate shall be adjusted automatically on
and as of the effective date of any change in the Eurocurrency Reserve Rate.

         Eurodollar Business Day. Any day on which commercial banks are open for
international business (including dealings in Dollar deposits) in London or such
other eurodollar interbank market as may be selected by the Agent in its sole
discretion acting in good faith.

         Eurodollar Lending Office. Initially, the office of each Bank
designated as such in Schedule 1 hereto; thereafter, such other office of such
Bank, if any, that shall be making or maintaining Eurodollar Rate Loans.

         Eurodollar Rate. For any Interest Period with respect to a Eurodollar
Rate Loan, the rate of interest equal to (a) the arithmetic average of the rates
per annum for each Reference Bank (rounded upwards to the nearest 1/16 of one
percent) of the rate at which such Reference Bank's Eurodollar Lending Office is
offered Dollar deposits two (2) Eurodollar Business Days prior to the beginning
of such Interest Period in the interbank eurodollar market where the eurodollar
and foreign currency and exchange operations of such Eurodollar Lending Office
are customarily conducted, for delivery on the first day of such Interest Period
for the number of days comprised therein and in an amount comparable to the
amount of the Eurodollar Rate Loan of such Reference Bank to which such Interest
Period applies, divided by (b) a number equal to 1.00 minus the Eurocurrency
Reserve Rate, if applicable.

         Eurodollar Rate Loans. Revolving Credit Loans bearing interest
calculated by reference to the Eurodollar Rate.

         Event of Default. See Section 13.1.

         Extension Date. April 24, 1997 and, thereafter, each April 24 of each
calendar year. 

         Fee Letter. The Fee Letter dated as of February 26, 1996 by and among
the Borrower and the Bank Agents, as the same may be amended, modified, restated
or supplemented from time to time.

         Foreign Subsidiary. Any Subsidiary which conducts substantially all of
its business in countries other than the United States of America and that is
organized under the laws of a jurisdiction other than the United States of
America and the States (or the District of Columbia) thereof.

<PAGE>   15
                                      -8-


         FNBB. The First National Bank of Boston, a national banking
association, in its individual capacity.

         generally accepted accounting principles. (a) When used in Section 10,
whether directly or indirectly through reference to a capitalized term used
therein, means (i) principles that are consistent with the principles
promulgated or adopted by the Financial Accounting Standards Board and its
predecessors, in effect for the fiscal year ended on the Balance Sheet Date, and
(ii) to the extent consistent with such principles, the accounting practice of
the Borrower reflected in its financial statements for the year ended on the
Balance Sheet Date, and (b) when used in general, other than as provided above,
means principles that are (i) consistent with the principles promulgated or
adopted by the Financial Accounting Standards Board and its predecessors, as in
effect from time to time, and (ii) consistently applied with past financial
statements of the Borrower adopting the same principles, provided that in each
case referred to in this definition of "generally accepted accounting
principles" a certified public accountant would, insofar as the use of such
accounting principles is pertinent, be in a position to deliver an unqualified
opinion (other than a qualification regarding changes in generally accepted
accounting principles) as to financial statements in which such principles have
been properly applied.

         Guaranteed Pension Plan. Any employee pension benefit plan within the
meaning of Section 3(2) of ERISA maintained or contributed to by the Borrower or
any ERISA Affiliate the benefits of which are guaranteed on termination in full
or in part by the PBGC pursuant to Title IV of ERISA, other than a Multiemployer
Plan.

         Guarantors. All Domestic Subsidiaries.

         Guaranty. The Guaranty, dated or to be dated on or prior to the Closing
Date, made by each Domestic Subsidiary of the Borrower in favor of the Banks and
the Bank Agents pursuant to which each Domestic Subsidiary of the Borrower
guaranties to the Banks and the Bank Agents the payment and performance of the
Obligations and in form and substance satisfactory to the Banks and the Agent.

         Hazardous Substances. See Section 7.17(b).

         Indebtedness. All obligations, contingent and otherwise, that in
accordance with generally accepted accounting principles should be classified
upon the obligor's balance sheet as liabilities, or to which reference should be
made by footnotes thereto, including in any event and whether or not so
classified: (a) all debt and similar monetary obligations, whether direct or
indirect; (b) all liabilities secured by any mortgage, pledge, security
interest, lien, charge or other encumbrance existing on property owned or
acquired subject thereto, whether or not the liability secured thereby shall
have been assumed; and (c) all guarantees, endorsements and other contingent
obligations whether direct or indirect in respect of indebtedness of others,
including any 

<PAGE>   16
                                      -9-


obligation to supply funds to or in any manner to invest in, directly or 
indirectly, the debtor, to purchase indebtedness, or to assure the owner of 
indebtedness against loss, through an agreement to purchase goods, supplies, or 
services for the purpose of enabling the debtor to make payment of the 
indebtedness held by such owner or otherwise, and the obligations to reimburse 
the issuer in respect of any letters of credit.

         Instrument of Accession. See Section 19.1.2.

         Interest Payment Date. (a) As to any Base Rate Loan, the last day of
the calendar quarter which includes the Drawdown Date thereof; and (b) as to any
Eurodollar Rate Loan in respect of which the Interest Period is (i) 3 months or
less, the last day of such Interest Period, (ii) more than three (3) month but
less than twelve (12) months, the date that is three (3) months from the first
day of such Interest Period and, in addition, the last day of such Interest
Period and (iii) is twelve (12) months, the dates which are (x) three (3) months
from the first day of such Interest Period, (y) six (6) months from the first
day of such Interest Period, (z) nine (9) months from the first day of such
Interest Period and, in addition, the last day of such Interest Period.

         Interest Period. With respect to each Revolving Credit Loan, (a)
initially, the period commencing on the Drawdown Date of such Revolving Credit
Loan and ending on the last day of one of the periods set forth below, as
selected by the Borrower in a Loan Request (i) for any Base Rate Loan, the last
day of the calendar quarter; and (ii) for any Eurodollar Rate Loan, 1, 2, 3 or 6
months, and, if available or consented to by the Banks, 12 months; and (b)
thereafter, each period commencing on the last day of the next preceding
Interest Period applicable to such Revolving Credit Loan and ending on the last
day of one of the periods set forth above, as selected by the Borrower in a
Conversion Request; provided that all of the foregoing provisions relating to
Interest Periods are subject to the following:

                  (a) if any Interest Period with respect to a Eurodollar Rate
         Loan would otherwise end on a day that is not a Eurodollar Business
         Day, that Interest Period shall be extended to the next succeeding
         Eurodollar Business Day unless the result of such extension would be to
         carry such Interest Period into another calendar month, in which event
         such Interest Period shall end on the immediately preceding Eurodollar
         Business Day;

                  (b) if the Borrower shall fail to give notice as provided in
         Section 2.7, the Borrower shall be deemed to have requested a 
         conversion of the affected Eurodollar Rate Loan to a Base Rate Loan and
         the continuance of all Base Rate Loans as Base Rate Loans on the last 
         day of the then current Interest Period with respect thereto;

                  (c) any Interest Period relating to any Eurodollar Rate Loan
         that begins on the last Eurodollar Business Day of a calendar month (or
         on a 

<PAGE>   17
                                      -10-


         day for which there is no numerically corresponding day in the calendar
         month at the end of such Interest Period) shall end on the last
         Eurodollar Business Day of a calendar month; and

                  (d) any Interest Period relating to any Eurodollar Rate Loan
         that would otherwise extend beyond the Revolving Credit Loan Maturity
         Date shall end on the Revolving Credit Loan Maturity Date.

         Investments. All expenditures made and all liabilities incurred
(contingently or otherwise) for the acquisition of stock or Indebtedness of, or
for loans, advances, capital contributions or transfers of property to, or in
respect of any guaranties (or other commitments as described under
Indebtedness), or obligations of, any Person. In determining the aggregate
amount of Investments outstanding at any particular time: (a) the amount of any
Investment represented by a guaranty shall be taken at not less than the
principal amount of the obligations guaranteed and still outstanding; (b) there
shall be included as an Investment all interest accrued with respect to
Indebtedness constituting an Investment unless and until such interest is paid;
(c) there shall be deducted in respect of each such Investment any amount
received as a return of capital (but only by repurchase, redemption, retirement,
repayment, liquidating dividend or liquidating distribution); (d) there shall
not be deducted in respect of any Investment any amounts received as earnings on
such Investment, whether as dividends, interest or otherwise, except that
accrued interest included as provided in the foregoing clause (b) may be
deducted when paid; and (e) there shall not be deducted from the aggregate
amount of Investments any decrease in the value thereof.

         Letter of Credit. See Section 4.1.1.

         Letter of Credit Application. See Section 4.1.1.

         Letter of Credit Participation. See Section 4.1.4.

         Loan Documents. This Credit Agreement, the Notes, the Letter of Credit
Applications, the Letters of Credit and the Guaranty.

         Loan Request. See Section 2.6.

         Majority Banks. As of any date, the Banks holding at least sixty-six
and two thirds percent (66 2/3%) of the outstanding principal amount of the
Revolving Credit Notes on such date; and if no such principal is outstanding,
the Banks whose aggregate Commitments constitutes at least sixty-six and two
thirds percent (66 2/3%) of the Total Commitment.

         Maximum Drawing Amount. The maximum aggregate amount that the
beneficiaries may at any time draw under outstanding Letters of Credit, as such
aggregate amount may be reduced from time to time pursuant to the terms of the
Letters of Credit.

<PAGE>   18
                                      -11-


         Multiemployer Plan. Any multiemployer plan within the meaning of
Section 3(37) of ERISA maintained or contributed to by the Borrower or any ERISA
Affiliate.

         NationsBank. NationsBank of Texas, N.A., a national banking
association, in its individual capacity.

         Obligations. All indebtedness, obligations and liabilities of any of
the Borrower and its Subsidiaries to any of the Banks and the Bank Agents,
individually or collectively, existing on the date of this Credit Agreement or
arising thereafter, direct or indirect, joint or several, absolute or
contingent, matured or unmatured, liquidated or unliquidated, secured or
unsecured, arising by contract, operation of law or otherwise, arising or
incurred under this Credit Agreement or any of the other Loan Documents or in
respect of any of the Revolving Credit Loans made or Reimbursement Obligations
incurred or any of the Revolving Credit Notes, Letter of Credit Application,
Letter of Credit or other instruments at any time evidencing any thereof.

         outstanding. With respect to the Revolving Credit Loans, the aggregate
unpaid principal thereof as of any date of determination.

         PBGC. The Pension Benefit Guaranty Corporation created by Section 4002
of ERISA and any successor entity or entities having similar responsibilities.

         Permitted Liens. Liens, security interests and other encumbrances
permitted by Section 9.2.

         Person. Any individual, corporation, partnership, trust, unincorporated
association, business, or other legal entity, and any government or any
governmental agency or political subdivision thereof.

         Rate Adjustment Period. See the definition of Applicable Margin.

         Real Estate. All real property at any time owned or leased (as lessee
or sublessee) by the Borrower or any of its Subsidiaries.

         Record. The grid attached to a Revolving Credit Note, or the
continuation of such grid, or any other similar record, including computer
records, maintained by any Bank with respect to any Revolving Credit Loan
referred to in such Revolving Credit Note.

         Reference Banks. NationsBank and FNBB.

         Reimbursement Obligation. The Borrower's obligation to reimburse the
Agent and the Banks on account of any drawing under any Letter of Credit as
provided in Section 4.2.

         Remaining Banks. See Section 2.1.2.

<PAGE>   19
                                      -12-


         Rental Obligations. All present or future obligations of the Borrower
or any of its Subsidiaries under any rental agreements or leases of real or
personal property, other than (a) obligations that can be terminated by the
giving of notice without liability to the Borrower or such Subsidiary in excess
of the liability for rent due as of the date on which such notice is given and
under which no penalty or premium is paid as a result of any such termination,
and (b) obligations in respect of Capitalized Leases.

         Replacement Bank. See Section 2.1.3.

         Replacement Date. See Section 2.1.3.

         Revolving Credit Loan Maturity Date. April 24, 1999, unless extended in
accordance with Section 2.1.2, and then such date as set forth in such extension
notice.

         Revolving Credit Loans. Revolving credit loans made or to be made by
the Banks to the Borrower pursuant to Section 2.

         Revolving Credit Notes. See Section 2.4.

         Senior Funded Indebtedness. At any time of determination, the amount of
the Total Commitment.

         Strategic Partners. Any corporation or other business entity with which
the Borrower or any of its Subsidiaries has or seeks to have a substantial or
continuing commercial relationship involving the purchase and/or sale of
products or materials or the development, acquisition or use of products,
technology or intellectual property, and which Strategic Partner and any
Investment in such Strategic Partner by the Borrower has been approved by the
Board of Directors of the Borrower prior to making any Investment in such
Strategic Partner.

         Subsidiary. Any corporation, association, trust, or other business
entity of which the designated parent shall at any time own directly or
indirectly through a Subsidiary or Subsidiaries at least a majority (by number
of votes) of the outstanding Voting Stock.

         Syndication Agent. As defined in the preamble hereto.

         Total Commitment. The sum of the Commitments of the Banks, as in effect
from time to time.

         Type. As to any Revolving Credit Loan its nature as a Base Rate Loan or
a Eurodollar Rate Loan.

         Uniform Customs. With respect to any Letter of Credit, the Uniform
Customs and Practice for Documentary Credits (1993 Revision), International
Chamber of Commerce Publication No. 500 or any successor version thereto 

<PAGE>   20
                                      -13-


adopted by the Agent in the ordinary course of its business as a letter of 
credit issuer and in effect at the time of issuance of such Letter of Credit.

         Unpaid Reimbursement Obligation. Any Reimbursement Obligation for which
the Borrower does not reimburse the Agent and the Banks on the date specified
in, and in accordance with, Section 4.2.

         Voting Stock. Stock or similar interests, of any class or classes
(however designated), the holders of which are at the time entitled, as such
holders, to vote for the election of a majority of the directors (or persons
performing similar functions) of the corporation, association, trust or other
business entity involved, whether or not the right so to vote exists by reason
of the happening of a contingency.

         1.2.  RULES OF INTERPRETATION.

                  (a) A reference to any document or agreement shall include
         such document or agreement as amended, modified or supplemented from
         time to time in accordance with its terms and the terms of this Credit
         Agreement.

                  (b)  The singular includes the plural and the plural includes 
         the singular.

                  (c)  A reference to any law includes any amendment or 
         modification to such law.

                  (d)  A reference to any Person includes its permitted 
         successors and permitted assigns.

                  (e) Accounting terms not otherwise defined herein have the
         meanings assigned to them by generally accepted accounting principles
         applied on a consistent basis by the accounting entity to which they
         refer.

                  (f)  The words "include", "includes" and "including" are not 
         limiting.

                  (g) All terms not specifically defined herein or by generally
         accepted accounting principles, which terms are defined in the Uniform
         Commercial Code as in effect in the State of New York, have the
         meanings assigned to them therein, with the term "instrument" being
         that defined under Article 9 of the Uniform Commercial Code.

                  (h) Reference to a particular "Section" refers to that 
         section of this Credit Agreement unless otherwise indicated.

                  (i) The words "herein", "hereof", "hereunder" and words of
         like import shall refer to this Credit Agreement as a whole and not to
         any particular section or subdivision of this Credit Agreement.

<PAGE>   21
                                      -14-


                        2. THE REVOLVING CREDIT FACILITY.

         2.1.  COMMITMENT TO LEND; EXTENSION OF MATURITY.

                  2.1.1. COMMITMENT TO LEND. Subject to the terms and conditions
         set forth in this Credit Agreement, each of the Banks severally agrees
         to lend to the Borrower and the Borrower may borrow, repay, and
         reborrow from time to time between the Closing Date and the Revolving
         Credit Loan Maturity Date upon notice by the Borrower to the Agent
         given in accordance with Section 2.6, such sums as are requested by the
         Borrower up to a maximum aggregate amount outstanding (after giving
         effect to all amounts requested) at any one time equal to such Bank's
         Commitment minus such Bank's Commitment Percentage of the sum of the
         Maximum Drawing Amount and all Unpaid Reimbursement Obligations,
         provided that the sum of the outstanding amount of the Revolving Credit
         Loans (after giving effect to all amounts requested) plus the Maximum
         Drawing Amount and all Unpaid Reimbursement Obligations shall not at
         any time exceed the Total Commitment. The Revolving Credit Loans shall
         be made pro rata in accordance with each Bank's Commitment Percentage.
         Each request for a Revolving Credit Loan hereunder shall constitute a
         representation and warranty by the Borrower that the conditions set
         forth in Section 11 and Section 12, in the case of the initial
         Revolving Credit Loans to be made on the Closing Date, and Section 12,
         in the case of all other Revolving Credit Loans, have been satisfied on
         the date of such request.

                  2.1.2. EXTENSION OF MATURITY. The Total Commitment shall
         terminate and all Revolving Credit Loans shall become finally due and
         payable on the Revolving Credit Loan Maturity Date; provided, however,
         that such Total Commitment and Revolving Credit Loan Maturity Date may
         be extended for successive annual periods, as provided in this Section 
         2.1.2 and at each Bank's sole discretion, upon the written request of
         the Borrower. A written request, if any, for the extension of the Total
         Commitment and the then current Revolving Credit Loan Maturity Date
         shall be given by the Borrower to the Agent and the Banks not less than
         one hundred twenty (120) days prior to the Extension Date. Except as
         expressly provided in this Section 2.1.2, no extension of the Total
         Commitment and then current Revolving Credit Loan Maturity Date
         pursuant to this Section 2.1.2 shall be effective unless all of the
         Banks shall have approved such extension by written notice to the
         Agent. If on or prior to ninety (90) days prior to the applicable
         Extension Date, all of the Banks consent to such extension by written
         notice to the Agent, the Total Commitment and the Revolving Credit Loan
         Maturity Date automatically shall be extended to that date which is one
         year later than the then current Revolving Credit Loan Maturity Date.
         If on or prior to ninety (90) days prior to the applicable Extension
         Date, any Bank (a "Declining Bank") shall have objected to such
         requested extension by written notice to the Agent or shall not have
         delivered the written notice to the Agent consenting to 

<PAGE>   22
                                      -15-


         such requested extension, then the Borrower may on or prior to thirty
         (30) days prior to such Extension Date, replace such Bank in accordance
         with the provisions of Section 2.1.3 hereof with a Replacement Bank
         which consents to the requested extension of the Total Commitment and
         the Revolving Credit Loan Maturity Date, in which case the Replacement
         Bank shall become a Bank party hereto effective no later than such
         Extension Date, the Total Commitment and the Revolving Credit Loan
         Maturity Date automatically shall be extended to that date which is one
         year later than the then current Revolving Credit Loan Maturity Date.
         In the event that the Borrower is unable to obtain such a Replacement
         Bank, no later than thirty (30) days prior to the applicable Extension
         Date the Borrower may deliver to the Agent a written request that each
         Bank other than the Declining Bank (collectively, the "Remaining
         Banks") agree to such requested extension, to the reduction of the
         Total Commitment to reflect the elimination of the Declining Bank's
         Commitment and to the recalculation of the Remaining Bank's Commitment
         Percentages to reflect such elimination of the Declining Bank. Upon
         receipt of such a request, the Agent shall promptly deliver to the
         Remaining Banks a written notice stating the proposed reduced Total
         Commitment with each Remaining Bank's proposed recalculated Commitment
         Percentage. No later than the applicable Extension Date, each Remaining
         Bank shall give written notice to the Borrower and the Agent accepting
         or rejecting such proposed reduced Total Commitment and recalculated
         Commitment Percentages. In the event that all of the Remaining Banks so
         consent, the Total Commitment and the Revolving Credit Loan Maturity
         Date automatically shall be extended to that date which is one year
         later than the then current Revolving Credit Loan Maturity date, the
         Total Commitment shall be reduced by the amount of the Declining Bank's
         Commitment, all amounts payable hereunder to the Declining Bank shall
         be paid in full, the Commitment of the Declining Bank shall be
         eliminated and each Remaining Bank's Commitment Percentage shall be
         recalculated as provided in this Section 2.1.2, in each case effective
         as of such Extension Date. In the event that the Borrower fails to
         obtain a Replacement Bank or any Remaining Bank fails to so consent, no
         extension of the Total Commitment and no extension of the then current
         Revolving Credit Loan Maturity Date, and no adjustments to the Total
         Commitment or Commitment Percentages, shall occur.

                  2.1.3.  REPLACEMENT BANKS.
                  Notwithstanding any other provision of this Credit Agreement
         to the contrary, in the event that any Bank is a Declining Bank
         pursuant to Section 2.1.2 and the Borrower so elects in accordance with
         Section 2.1.2 hereof, then the Borrower in its discretion may (a) send
         written notice to such Declining Bank and the Agent advising such
         Declining Bank that, subject to the provisions of this Section 2.1.3,
         its Commitment hereunder shall be terminated on a date determined by
         the Borrower (the "Replacement Date"), which Replacement Date shall be
         no earlier than the date on which such Declining Bank and the Agent
         have 

<PAGE>   23
                                      -16-


         received such notice from the Borrower, and, commencing on the
         Replacement Date, the Commitment of such Declining Bank hereunder shall
         be terminated and no Commitment Fee shall be payable by the Borrower to
         such Declining Bank with respect to such Commitment and (b) replace
         such Declining Bank with another Bank or other commercial banking
         institution (the "Replacement Bank") which has been selected by the
         Borrower and approved by the Majority Banks, which approval shall not
         be unreasonably withheld, provided that the Borrower, the Banks and the
         Agent agree that (i) on or prior to the Replacement Date, the Borrower
         shall have paid all principal, interest and fees owing by the Borrower
         hereunder, accruing up to and including the Replacement Date, to the
         Declining Bank being replaced on the Replacement Date, (ii) as of the
         Replacement Date, the Replacement Bank will take over the entire
         Commitment of the Declining Bank being replaced, (iii) on or prior to
         the Drawdown Date first following the Replacement Date, the Borrower,
         the Agent and the Banks (other than the Declining Bank being replaced)
         and the Replacement Bank shall make such arrangements by way of new
         Revolving Credit Loans, purchases or refundings of existing Revolving
         Credit Loans or otherwise as will result thereafter in the outstanding
         and unpaid Revolving Credit Loans of each Bank being equal, as near as
         may practically be, to such Bank's Commitment Percentage of all the
         outstanding and unpaid Revolving Credit Loans made to the Borrower, and
         (iv) the Agent shall be entitled to receive prior to the Replacement
         Date from the Borrower and the Replacement Bank such supplemental
         agreements, documents, certificates and legal opinions in connection
         with the replacement of such Declining Bank as the Agent and the other
         Banks may reasonably request to give effect to the foregoing provisions
         of this Section 2.1.3.

         2.2. COMMITMENT FEE. The Borrower agrees to pay to the Agent for the
accounts of the Banks in accordance with their respective Commitment Percentages
a commitment fee (the "Commitment Fee") calculated at the applicable Commitment
Fee Rate on the average daily amount during each calendar quarter or portion
thereof from the Closing Date to the Revolving Credit Loan Maturity Date by
which the Total Commitment minus the sum of the Maximum Drawing Amount and all
Unpaid Reimbursement Obligations exceeds the outstanding amount of Revolving
Credit Loans during such calendar quarter. The Commitment Fee shall be payable
quarterly in arrears on the first day of each calendar quarter for the
immediately preceding calendar quarter commencing on the first such date
following the date hereof, with a final payment on the Revolving Credit Maturity
Date or any earlier date on which the Commitments shall terminate.

         2.3. REDUCTION OF TOTAL COMMITMENT. The Borrower shall have the right
at any time and from time to time upon five (5) Business Days prior written
notice to the Agent to reduce by $10,000,000 or a whole multiple of $500,000 in
excess thereof or terminate entirely the Total Commitment, whereupon the
Commitments of the Banks shall be reduced pro rata in 

<PAGE>   24
                                      -17-


accordance with their respective Commitment Percentages of the amount specified
in such notice or, as the case may be, terminated. Promptly after receiving any
notice of the Borrower delivered pursuant to this Section 2.3, the Agent will
notify the Banks of the substance thereof. Upon the effective date of any such
reduction or termination, the Borrower shall pay to the Agent for the respective
accounts of the Banks the full amount of any Commitment Fee then accrued on the
amount of the reduction. No reduction or termination of the Commitments may be
reinstated.

         2.4. THE REVOLVING CREDIT NOTES. The Revolving Credit Loans shall be
evidenced by separate promissory notes of the Borrower in substantially the form
of Exhibit A hereto (each a "Revolving Credit Note"), dated as of the Closing
Date and completed with appropriate insertions. One Revolving Credit Note shall
be payable to the order of each Bank in a principal amount equal to such Bank's
Commitment or, if less, the outstanding amount of all Revolving Credit Loans
made by such Bank, plus interest accrued thereon, as set forth below. The
Borrower irrevocably authorizes each Bank to make or cause to be made, at or
about the time of the Drawdown Date of any Revolving Credit Loan or at the time
of receipt of any payment of principal on such Bank's Revolving Credit Note, an
appropriate notation on such Bank's Record reflecting the making of such
Revolving Credit Loan or (as the case may be) the receipt of such payment. The
outstanding amount of the Revolving Credit Loans set forth on such Bank's Record
shall be prima facie evidence of the principal amount thereof owing and unpaid
to such Bank, but the failure to record, or any error in so recording, any such
amount on such Bank's Record shall not limit or otherwise affect the obligations
of the Borrower hereunder or under any Revolving Credit Note to make payments of
principal of or interest on any Revolving Credit Note when due.

         2.5. INTEREST ON REVOLVING CREDIT LOANS. Except as otherwise provided
in Section 5.11,

                  (a) Each Base Rate Loan shall bear interest for the period
         commencing with the Drawdown Date thereof and ending on the last day of
         the Interest Period with respect thereto at the rate per annum equal to
         the Base Rate plus the Applicable Margin.

                  (b) Each Eurodollar Rate Loan shall bear interest for the
         period commencing with the Drawdown Date thereof and ending on the last
         day of the Interest Period with respect thereto at the rate per annum
         equal to the Eurodollar Rate determined for such Interest Period plus
         the Applicable Margin.

                  (c) The Borrower promises to pay interest on each Revolving
         Credit Loan in arrears on each Interest Payment Date with respect
         thereto.

<PAGE>   25
                                      -18-


         2.6. REQUESTS FOR REVOLVING CREDIT LOANS. The Borrower shall give to
the Agent written notice in the form of Exhibit B hereto (or telephonic notice
confirmed in a writing in the form of Exhibit B hereto) of each Revolving Credit
Loan requested hereunder (a "Loan Request") not later than (a) 11:00 a.m.
(Boston time) on the proposed Drawdown Date of any Base Rate Loan and (ii) 11:00
a.m. (Boston time) two (2) Eurodollar Business Days prior to the proposed
Drawdown Date of any Eurodollar Rate Loan. Each such notice shall specify (i)
the principal amount of the Revolving Credit Loan requested, (ii) the proposed
Drawdown Date of such Revolving Credit Loan, (iii) the Interest Period for such
Revolving Credit Loan and (iv) the Type of such Revolving Credit Loan. Promptly
upon receipt of any such notice, the Agent shall notify each of the Banks
thereof. Each Loan Request shall be irrevocable and binding on the Borrower and
shall obligate the Borrower to accept the Revolving Credit Loan requested from
the Banks on the proposed Drawdown Date. Each Loan Request shall for a Base Rate
Loan shall be in a minimum aggregate amount of $1,000,000 or a larger integral
multiple of $100,000 in excess thereof, and each Loan Request for a Eurodollar
Rate Loan shall be in a minimum aggregate amount of $5,000,000 or a larger
integral multiple of $1,000,000 in excess thereof.

         2.7.  CONVERSION OPTIONS.

                  2.7.1. CONVERSION TO DIFFERENT TYPE OF REVOLVING CREDIT LOAN.
         The Borrower may elect from time to time to convert any outstanding
         Revolving Credit Loan to a Revolving Credit Loan of another Type,
         provided that (a) with respect to any such conversion of a Revolving
         Credit Loan to a Base Rate Loan, the Borrower shall give the Agent at
         least one (1) Business Days prior written notice of such election; (b)
         with respect to any such conversion of a Base Rate Loan to a Eurodollar
         Rate Loan, the Borrower shall give the Agent at least two (2)
         Eurodollar Business Days prior written notice of such election; (c)
         with respect to any such conversion of a Eurodollar Rate Loan into a
         Revolving Credit Loan of another Type, such conversion shall only be
         made on the last day of the Interest Period with respect thereto and
         (d) no Revolving Credit Loan may be converted into a Eurodollar Rate
         Loan when any Default or Event of Default has occurred and is
         continuing. On the date on which such conversion is being made each
         Bank shall take such action as is necessary to transfer its Commitment
         Percentage of such Revolving Credit Loans to its Domestic Lending
         Office or its Eurodollar Lending Office, as the case may be. All or any
         part of outstanding Revolving Credit Loans of any Type may be converted
         into a Revolving Credit Loan of another Type as provided herein,
         provided that any partial conversion into a Base Rate Loan shall be in
         an aggregate principal amount of $1,000,000 or a larger integral
         multiple of $100,000 in excess thereof, and any partial conversion into
         a Eurodollar Rate Loan shall be in an aggregate principal amount of
         $5,000,000 or a larger integral multiple of $1,000,000 in excess
         thereof. Each Conversion Request relating to the 

<PAGE>   26
                                      -19-


         conversion of a Revolving Credit Loan to a Eurodollar Rate Loan shall
         be irrevocable by the Borrower.

                  2.7.2. CONTINUATION OF TYPE OF REVOLVING CREDIT LOAN. Any
         Revolving Credit Loan of any Type may be continued as a Revolving
         Credit Loan of the same Type upon the expiration of an Interest Period
         with respect thereto by compliance by the Borrower with the notice
         provisions contained in Section 2.7.1; provided that no Eurodollar Rate
         Loan may be continued as such when any Default or Event of Default has
         occurred and is continuing, but shall be automatically converted to a
         Base Rate Loan on the last day of the first Interest Period relating
         thereto ending during the continuance of any Default or Event of
         Default. In the event that the Borrower fails to provide any such
         notice with respect to the continuation of any Eurodollar Rate Loan as
         such, then such Eurodollar Rate Loan shall be automatically converted
         to a Base Rate Loan on the last day of the first Interest Period
         relating thereto. The Agent shall notify the Banks promptly when any
         such automatic conversion contemplated by this Section 2.7 is scheduled
         to occur.

                  2.7.3. EURODOLLAR RATE LOANS. Any conversion to or from
         Eurodollar Rate Loans shall be in such amounts and be made pursuant to
         such elections so that, after giving effect thereto, the aggregate
         principal amount of all Eurodollar Rate Loans having the same Interest
         Period shall not be less than $5,000,000 or an integral multiple of
         $1,000,000 in excess thereof. In addition, there shall not be more than
         ten (10) Eurodollar Rate Loans outstanding at any one time.

         2.8.  FUNDS FOR REVOLVING CREDIT LOAN.

                  2.8.1. FUNDING PROCEDURES. Not later than 1:00 p.m. (Boston
         time) on the proposed Drawdown Date of any Revolving Credit Loans, each
         of the Banks will make available to the Agent, at the Agent's Head
         Office, in immediately available funds, the amount of such Bank's
         Commitment Percentage of the amount of the requested Revolving Credit
         Loans. Upon receipt from each Bank of such amount, and upon receipt of
         the documents required by Sections 11 and 12 and the satisfaction of
         the other conditions set forth therein, to the extent applicable, the
         Agent will make available to the Borrower the aggregate amount of such
         Revolving Credit Loans made available to the Agent by the Banks. The
         failure or refusal of any Bank to make available to the Agent at the
         aforesaid time and place on any Drawdown Date the amount of its
         Commitment Percentage of the requested Revolving Credit Loans shall not
         relieve any other Bank from its several obligation hereunder to make
         available to the Agent the amount of such other Bank's Commitment
         Percentage of any requested Revolving Credit Loans.

<PAGE>   27
                                      -20-


                  2.8.2. ADVANCES BY AGENT. The Agent may, unless notified to
         the contrary by any Bank prior to a Drawdown Date, assume that such
         Bank has made available to the Agent on such Drawdown Date the amount
         of such Bank's Commitment Percentage of the Revolving Credit Loans to
         be made on such Drawdown Date, and the Agent may (but it shall not be
         required to), in reliance upon such assumption, make available to the
         Borrower a corresponding amount. If any Bank makes available to the
         Agent such amount on a date after such Drawdown Date, such Bank shall
         pay to the Agent on demand an amount equal to the product of (a) the
         average computed for the period referred to in clause (c) below, of the
         weighted average interest rate paid by the Agent for federal funds
         acquired by the Agent during each day included in such period, times
         (b) the amount of such Bank's Commitment Percentage of such Revolving
         Credit Loans, times (c) a fraction, the numerator of which is the
         number of days that elapse from and including such Drawdown Date to the
         date on which the amount of such Bank's Commitment Percentage of such
         Revolving Credit Loans shall become immediately available to the Agent,
         and the denominator of which is 360. A statement of the Agent submitted
         to such Bank with respect to any amounts owing under this paragraph
         shall be prima facie evidence of the amount due and owing to the Agent
         by such Bank. If the amount of such Bank's Commitment Percentage of
         such Revolving Credit Loans is not made available to the Agent by such
         Bank within three (3) Business Days following such Drawdown Date, the
         Agent shall be entitled to recover such amount from the Borrower on
         demand, with interest thereon at the rate per annum applicable to the
         Revolving Credit Loans made on such Drawdown Date.

                   3. REPAYMENT OF THE REVOLVING CREDIT LOANS.

         3.1. MATURITY. The Borrower promises to pay on the Revolving Credit
Loan Maturity Date, and there shall become absolutely due and payable on the
Revolving Credit Loan Maturity Date, all of the Revolving Credit Loans
outstanding on such date, together with any and all accrued and unpaid interest
thereon.

         3.2. MANDATORY REPAYMENTS OF REVOLVING CREDIT LOANS. If at any time the
sum of the outstanding amount of the Revolving Credit Loans, the Maximum Drawing
Amount and all Unpaid Reimbursement Obligations exceeds the Total Commitment,
then the Borrower shall immediately pay the amount of such excess to the Agent
for the respective accounts of the Banks for application: first, to any Unpaid
Reimbursement Obligations; second, to the Revolving Credit Loans; and third, to
provide to the Agent cash collateral for Reimbursement Obligations as
contemplated by Section 4.2(b) and (c). Each payment of any Unpaid Reimbursement
Obligations or prepayment of Revolving Credit Loans shall be allocated among the
Banks, in proportion, as nearly as practicable, to each

<PAGE>   28
                                      -21-


Reimbursement Obligation or (as the case may be) the respective unpaid principal
amount of each Bank's Revolving Credit Note, with adjustments to the extent 
practicable to equalize any prior payments or repayments not exactly in
proportion.

         3.3. OPTIONAL REPAYMENTS OF REVOLVING CREDIT LOANS. The Borrower shall
have the right, at its election, to repay the outstanding amount of the
Revolving Credit Loans, as a whole or in part, at any time without penalty or
premium, provided that any full or partial prepayment of the outstanding amount
of any Eurodollar Rate Loans pursuant to this Section 3.3 may be made only on
the last day of the Interest Period relating thereto. The Borrower shall give
the Agent, no later than 1:00 p.m., Boston time, at least one (1) Business Days
prior written notice of any proposed prepayment pursuant to this Section 3.3 of
Base Rate Loans, and two (2) Eurodollar Business Days notice of any proposed
prepayment pursuant to this Section 3.3 of Eurodollar Rate Loans, in each case
specifying the proposed date of prepayment of Revolving Credit Loans and the
principal amount to be prepaid. Each such partial prepayment of the Revolving
Credit Loans shall be in an integral multiple of $1,000,000, shall be
accompanied by the payment of accrued interest on the principal prepaid to the
date of prepayment and shall be applied, in the absence of instruction by the
Borrower, first to the principal of Base Rate Loans and then to the principal of
Eurodollar Rate Loans. Each partial prepayment shall be allocated among the
Banks, in proportion, as nearly as practicable, to the respective unpaid
principal amount of each Bank's Revolving Credit Note, with adjustments to the
extent practicable to equalize any prior repayments not exactly in proportion.

                              4. LETTERS OF CREDIT.

         4.1.  LETTER OF CREDIT COMMITMENTS.

                  4.1.1. COMMITMENT TO ISSUE LETTERS OF CREDIT. Subject to the
         terms and conditions hereof and the execution and delivery by the
         Borrower of a letter of credit application on the Agent's customary
         form (a "Letter of Credit Application"), the Agent on behalf of the
         Banks and in reliance upon the agreement of the Banks set forth in
         Section 4.1.4 and upon the representations and warranties of the
         Borrower contained herein, agrees, in its individual capacity, to
         issue, extend and renew for the account of the Borrower one or more
         standby letters of credit (individually, a "Letter of Credit"), in such
         form as may be requested from time to time by the Borrower and agreed
         to by the Agent; provided, however, that, after giving effect to such
         request, (a) the sum of the aggregate Maximum Drawing Amount and all
         Unpaid Reimbursement Obligations shall not exceed $15,000,000 at any
         one time and (b) the sum of (i) the Maximum Drawing Amount on all
         Letters of Credit, (ii) all Unpaid Reimbursement Obligations, and (iii)
         the amount of all Revolving Credit Loans outstanding shall not exceed
         the Total Commitment. Notwithstanding the foregoing, the Agent shall
         have no obligation to issue any Letter of Credit to support or secure
         any Indebtedness of the Borrower or any of its 

<PAGE>   29
                                      -22-


         Subsidiaries to the extent that such Indebtedness was incurred prior to
         the proposed issuance date of such Letter of Credit, unless in any such
         case the Borrower demonstrates to the satisfaction of the Agent that
         (x) such prior incurred Indebtedness were then fully secured by a prior
         perfected and unavoidable security interest in collateral provided by
         the Borrower or such Subsidiary to the proposed beneficiary of such
         Letter of Credit or (y) such prior incurred Indebtedness were then
         secured or supported by a letter of credit issued for the account of
         the Borrower or such Subsidiary and the reimbursement obligation with
         respect to such letter of credit was fully secured by a prior perfected
         and unavoidable security interest in collateral provided to the issuer
         of such letter of credit by the Borrower or such Subsidiary. Within a
         reasonable time after the issuance of any Letter of Credit, the Agent
         shall notify the Banks of the issuance of such Letter of Credit.

                  4.1.2. LETTER OF CREDIT APPLICATIONS. Each Letter of Credit
         Application shall be completed to the satisfaction of the Agent. In the
         event that any provision of any Letter of Credit Application shall be
         inconsistent with any provision of this Credit Agreement, then the
         provisions of this Credit Agreement shall, to the extent of any such
         inconsistency, govern.

                  4.1.3. TERMS OF LETTERS OF CREDIT. Each Letter of Credit
         issued, extended or renewed hereunder shall, among other things, (a)
         provide for the payment of sight drafts for honor thereunder when
         presented in accordance with the terms thereof and when accompanied by
         the documents described therein, (b) have an expiry date no later than
         the date which is fourteen (14) days (or, if the Letter of Credit is
         confirmed by a confirmer or otherwise provides for one or more
         nominated persons, forty-five (45) days) prior to the Revolving Credit
         Loan Maturity Date and (c) have an expiry date no longer than one (1)
         year from the date of issuance. Each Letter of Credit so issued,
         extended or renewed shall be subject to the Uniform Customs.

                  4.1.4. REIMBURSEMENT OBLIGATIONS OF BANKS. Each Bank severally
         agrees that it shall be absolutely liable, without regard to the
         occurrence of any Default or Event of Default or any other condition
         precedent whatsoever, to the extent of such Bank's Commitment
         Percentage, to reimburse the Agent on demand for the amount of each
         draft paid by the Agent under each Letter of Credit to the extent that
         such amount is not reimbursed by the Borrower pursuant to Section 4.2
         (such agreement for a Bank being called herein the "Letter of Credit
         Participation" of such Bank).

<PAGE>   30
                                      -23-


                  4.1.5. PARTICIPATIONS OF BANKS. Each such payment made by a
         Bank shall be treated as the purchase by such Bank of a participating
         interest in the Borrower's Reimbursement Obligation under Section 4.2
         in an amount equal to such payment. Each Bank shall share in accordance
         with its participating interest in any interest which accrues pursuant
         to Section 4.2.

         4.2. REIMBURSEMENT OBLIGATION OF THE BORROWER. In order to induce the
Agent to issue, extend and renew each Letter of Credit and the Banks to
participate therein, the Borrower hereby agrees to reimburse or pay to the
Agent, for the account of the Agent or (as the case may be) the Banks, with
respect to each Letter of Credit issued, extended or renewed by the Agent
hereunder,

                  (a) except as otherwise expressly provided in Section 4.2(b)
         and (c), on each date that any draft presented under such Letter of
         Credit is honored by the Agent, or the Agent otherwise makes a payment
         with respect thereto, (i) the amount paid by the Agent under or with
         respect to such Letter of Credit, and (ii) the amount of any taxes,
         fees, charges or other costs and expenses whatsoever incurred by the
         Agent or any Bank in connection with any payment made by the Agent or
         any Bank under, or with respect to, such Letter of Credit,

                  (b) upon the reduction (but not termination) of the Total
         Commitment to an amount less than the Maximum Drawing Amount, an amount
         equal to such difference, which amount shall be held by the Agent for
         the benefit of the Banks and the Agent as cash collateral for all
         Reimbursement Obligations, and

                  (c) upon the termination of the Total Commitment, or the
         acceleration of the Reimbursement Obligations with respect to all
         Letters of Credit in accordance with Section 13, an amount equal to the
         then Maximum Drawing Amount on all Letters of Credit, which amount
         shall be held by the Agent for the benefit of the Banks and the Agent
         as cash collateral for all Reimbursement Obligations.

Each such payment shall be made to the Agent at the Agent's Head Office in
immediately available funds. Interest on any and all amounts remaining unpaid by
the Borrower under this Section 4.2 at any time from the date such amounts 
become due and payable (whether as stated in this Section 4.2, by acceleration 
or otherwise) until payment in full (whether before or after judgment) shall be
payable to the Agent on demand at the rate specified in Section 5.11 for overdue
principal on the Revolving Credit Loans.

         4.3. LETTER OF CREDIT PAYMENTS. If any draft shall be presented or
other demand for payment shall be made under any Letter of Credit, the Agent
shall notify the Borrower of the date and amount of the draft presented or
demand for payment and of the date and time when it expects to pay such draft 

<PAGE>   31
                                      -24-


or honor such demand for payment. If the Borrower fails to reimburse the Agent
as provided in Section 4.2 on or before the date that such draft is paid or
other payment is made by the Agent, the Agent may at any time thereafter notify
the Banks of the amount of any such Unpaid Reimbursement Obligation. No later
than 3:00 p.m. (Boston time) on the Business Day next following the receipt of
such notice, each Bank shall make available to the Agent, at the Agent's Head
Office, in immediately available funds, such Bank's Commitment Percentage of
such Unpaid Reimbursement Obligation, together with an amount equal to the
product of (a) the average, computed for the period referred to in clause (c)
below, of the weighted average interest rate paid by the Agent for federal funds
acquired by the Agent during each day included in such period, times (b) the
amount equal to such Bank's Commitment Percentage of such Unpaid Reimbursement
Obligation, times (c) a fraction, the numerator of which is the number of days
that elapse from and including the date the Agent paid the draft presented for
honor or otherwise made payment to the date on which such Bank's Commitment
Percentage of such Unpaid Reimbursement obligation shall become immediately
available to the Agent, and the denominator of which is 360. The responsibility
of the Agent to the Borrower and the Banks shall be only to determine that the
documents (including each draft) delivered under each Letter of Credit in
connection with such presentment shall be in conformity in all material respects
with such Letter of Credit.

         4.4. OBLIGATIONS ABSOLUTE. The Borrower's obligations under this
Section 4 shall be absolute and unconditional under any and all circumstances
and irrespective of the occurrence of any Default or Event of Default or any
condition precedent whatsoever or any setoff, counterclaim or defense to payment
which the Borrower may have or have had against the Agent, any Bank or any
beneficiary of a Letter of Credit. The Borrower further agrees with the Agent
and the Banks that the Agent and the Banks shall not be responsible for, and the
Borrower's Reimbursement Obligations under Section 4.2 shall not be affected by,
among other things, the validity or genuineness of documents or of any
endorsements thereon, even if such documents should in fact prove to be in any
or all respects invalid, fraudulent or forged, or any dispute between or among
the Borrower, the beneficiary of any Letter of Credit or any financing
institution or other party to which any Letter of Credit may be transferred or
any claims or defenses whatsoever of the Borrower against the beneficiary of any
Letter of Credit or any such transferee. The Agent and the Banks shall not be
liable for any error, omission, interruption or delay in transmission, dispatch
or delivery of any message or advice, however transmitted, in connection with
any Letter of Credit. The Borrower agrees that any action taken or omitted by
the Agent or any Bank under or in connection with each Letter of Credit and the
related drafts and documents, if done in good faith, shall be binding upon the
Borrower and shall not result in any liability on the part of the Agent or any
Bank to the Borrower.

<PAGE>   32
                                      -25-


         4.5. RELIANCE BY ISSUER. To the extent not inconsistent with Section 
4.4, the Agent shall be entitled to rely, and shall be fully protected in
relying upon, any Letter of Credit, draft, writing, resolution, notice, consent,
certificate, affidavit, letter, cablegram, telegram, telecopy, telex or teletype
message, statement, order or other document believed by it to be genuine and
correct and to have been signed, sent or made by the proper Person or Persons
and upon advice and statements of legal counsel, independent accountants and
other experts selected by the Agent. The Agent shall be fully justified in
failing or refusing to take any action under this Agreement unless it shall
first have received such advice or concurrence of the Majority Banks as it
reasonably deems appropriate or it shall first be indemnified to its reasonable
satisfaction by the Banks against any and all liability and expense which may be
incurred by it by reason of taking or continuing to take any such action. The
Agent shall in all cases be fully protected in acting, or in refraining from
acting, under this Agreement in accordance with a request of the Majority Banks,
and such request and any action taken or failure to act pursuant thereto shall
be binding upon the Banks and all future holders of the Revolving Credit Notes
or of a Letter of Credit Participation.

         4.6. LETTER OF CREDIT FEE. The Borrower shall, on the date of issuance
or any extension or renewal of any Letter of Credit and at such other time or
times as such charges are customarily made by the Agent, pay a fee (in each
case, a "Letter of Credit Fee") in respect of each Letter of Credit issued
pursuant to this Credit Agreement, calculated at the rate of the Applicable
Margin per annum on the face amount of each such Letter of Credit plus the
Agent's customary issuance and/or amendment fee, such Letter of Credit Fee (but
not such issuance or amendment fee) to be for the accounts of the Banks in
accordance with their respective Commitment Percentages.

                         5. CERTAIN GENERAL PROVISIONS.

         5.1. ARRANGEMENT FEE. The Borrower agrees to pay to the Bank Agents an
arrangement fee in the amounts and at the times set forth in the Fee Letter.

         5.2. ADMINISTRATION FEE. The Borrower shall pay to the Agent an
administrative fee in the amounts and at the times set forth in the Fee Letter.

         5.3.  FUNDS FOR PAYMENTS.

                  5.3.1. PAYMENTS TO AGENT. All payments of principal, interest,
         Reimbursement Obligations, commitment fees, Letter of Credit Fees and
         any other amounts due hereunder or under any of the other Loan
         Documents shall be made to the Agent, for the respective accounts of
         the Banks and the Bank Agents, at the Agent's Head Office or at such
         other location in the Boston, Massachusetts, area that the Agent may
         from time to time designate, in each case in immediately available
         funds.

<PAGE>   33
                                      -26-


                  5.3.2. NO OFFSET, ETC. All payments by the Borrower hereunder
         and under any of the other Loan Documents shall be made without setoff
         or counterclaim and free and clear of and without deduction for any
         taxes, levies, imposts, duties, charges, fees, deductions,
         withholdings, compulsory loans, restrictions or conditions of any
         nature now or hereafter imposed or levied by any jurisdiction or any
         political subdivision thereof or taxing or other authority therein
         unless the Borrower is compelled by law to make such deduction or
         withholding. If any such obligation is imposed upon the Borrower with
         respect to any amount payable by it hereunder or under any of the other
         Loan Documents, the Borrower will pay to the Agent, for the account of
         the Banks or (as the case may be) either of the Bank Agents, on the
         date on which such amount is due and payable hereunder or under such
         other Loan Document, such additional amount in Dollars as shall be
         necessary to enable the Banks or either of the Bank Agents to receive
         the same net amount which the Banks or either of the Bank Agents would
         have received on such due date had no such obligation been imposed upon
         the Borrower. The Borrower will deliver promptly to the Agent
         certificates or other valid vouchers for all taxes or other charges
         deducted from or paid with respect to payments made by the Borrower
         hereunder or under such other Loan Document.

         5.4. COMPUTATIONS. All computations of interest on Base Rate Loans
shall be based on a 365-day year and paid for the actual number of days elapsed.
All computations of interest on the Eurodollar Rate Loans and of Commitment
Fees, Letter of Credit Fees or other fees shall be based on a 360-day year and
paid for the actual number of days elapsed. Except as otherwise provided in the
definition of the term "Interest Period" with respect to Eurodollar Rate Loans,
whenever a payment hereunder or under any of the other Loan Documents becomes
due on a day that is not a Business Day, the due date for such payment shall be
extended to the next succeeding Business Day, and interest shall accrue during
such extension. The outstanding amount of the Revolving Credit Loans as
reflected on the Records from time to time shall be considered correct and
binding on the Borrower unless within five (5) Business Days after receipt of
any notice by the Agent or any of the Banks of such outstanding amount, the
Agent or such Bank shall notify the Borrower to the contrary.

         5.5. INABILITY TO DETERMINE EURODOLLAR RATE. In the event, prior to the
commencement of any Interest Period relating to any Eurodollar Rate Loan, the
Agent shall determine or be notified by the Majority Banks that adequate and
reasonable methods do not exist for ascertaining the Eurodollar Rate that would
otherwise determine the rate of interest to be applicable to any Eurodollar Rate
Loan during any Interest Period, the Agent shall forthwith give notice of such
determination (which shall be conclusive and binding on the Borrower and the
Banks) to the Borrower and the Banks. In such event (a) any Loan Request or
Conversion Request with respect to Eurodollar Rate Loans shall be automatically
withdrawn and shall be deemed a request for Base Rate Loans, (b) each Eurodollar
Rate Loan will automatically, on the last day of the 

<PAGE>   34
                                      -27-


then current Interest Period relating thereto, become a Base Rate Loan, and (c) 
the obligations of the Banks to make Eurodollar Rate Loans shall be suspended 
until the Agent or the Majority Banks determines that the circumstances giving 
rise to such suspension no longer exist, whereupon the Agent or, as the case may
be, the Agent upon the instruction of the Majority Banks, shall so notify the 
Borrower and the Banks.

         5.6. ILLEGALITY. Notwithstanding any other provisions herein, if any
present or future law, regulation, treaty or directive or in the interpretation
or application thereof shall make it unlawful for any Bank to make or maintain
Eurodollar Rate Loans, such Bank shall forthwith give notice of such
circumstances to the Borrower and the other Banks and thereupon (a) the
commitment of such Bank to make Eurodollar Rate Loans or convert Base Rate Loans
to Eurodollar Rate Loans shall forthwith be suspended and (b) such Bank's
Revolving Credit Loans then outstanding as Eurodollar Rate Loans, if any, shall
be converted automatically to Base Rate Loans on the last day of each Interest
Period applicable to such Eurodollar Rate Loans or within such earlier period as
may be required by law. The Borrower hereby agrees promptly to pay the Agent for
the account of such Bank, upon demand by such Bank, any additional amounts
necessary to compensate such Bank for any costs incurred by such Bank in making
any conversion in accordance with this Section 5.6, including any interest or
fees payable by such Bank to lenders of funds obtained by it in order to make or
maintain its Eurodollar Rate Loans hereunder.

         5.7. ADDITIONAL COSTS, ETC. If any present or future applicable law,
which expression, as used herein, includes statutes, rules and regulations
thereunder and interpretations thereof by any competent court or by any
governmental or other regulatory body or official charged with the
administration or the interpretation thereof and requests, directives,
instructions and notices at any time or from time to time hereafter made upon or
otherwise issued to any Bank or the Agent by any central bank or other fiscal,
monetary or other authority (whether or not having the force of law), shall:

                  (a) subject any Bank or the Agent to any tax, levy, impost,
         duty, charge, fee, deduction or withholding of any nature with respect
         to this Credit Agreement, the other Loan Documents, any Letters of
         Credit, such Bank's Commitment or the Revolving Credit Loans (other
         than taxes based upon or measured by the income or profits of such Bank
         or the Agent), or

                  (b) materially change the basis of taxation (except for
         changes in taxes on income or profits) of payments to any Bank of the
         principal of or the interest on any Revolving Credit Loans or any other
         amounts payable to any Bank or the Agent under this Credit Agreement or
         any of the other Loan Documents, or

<PAGE>   35
                                      -28-


                  (c) impose or increase or render applicable (other than to the
         extent specifically provided for elsewhere in this Credit Agreement)
         any special deposit, reserve, assessment, liquidity, capital adequacy
         or other similar requirements (whether or not having the force of law)
         against assets held by, or deposits in or for the account of, or loans
         by, or letters of credit issued by, or commitments of an office of any
         Bank, or

                  (d) impose on any Bank or the Agent any other conditions or
         requirements with respect to this Credit Agreement, the other Loan
         Documents, any Letters of Credit, the Revolving Credit Loans, such
         Bank's Commitment, or any class of loans, letters of credit or
         commitments of which any of the Revolving Credit Loans or such Bank's
         Commitment forms a part, and the result of any of the foregoing is

                           (i) to increase the cost to any Bank of making,
                  funding, issuing, renewing, extending or maintaining any of
                  the Revolving Credit Loans or such Bank's Commitment or any
                  Letter of Credit, or

                           (ii) to reduce the amount of principal, interest,
                  Reimbursement Obligation or other amount payable to such Bank
                  or the Agent hereunder on account of such Bank's Commitment,
                  any Letter of Credit or any of the Revolving Credit Loans, or

                           (iii) to require such Bank or the Agent to make any
                  payment or to forego any interest or Reimbursement Obligation
                  or other sum payable hereunder, the amount of which payment or
                  foregone interest or Reimbursement Obligation or other sum is
                  calculated by reference to the gross amount of any sum
                  receivable or deemed received by such Bank or the Agent from
                  the Borrower hereunder,

then, and in each such case, the Borrower will, upon demand made by such Bank or
(as the case may be) the Agent at any time and from time to time and as often as
the occasion therefor may arise, pay to such Bank or the Agent such additional
amounts as will be sufficient to compensate such Bank or the Agent for such
additional cost, reduction, payment or foregone interest or Reimbursement
Obligation or other sum.

         5.8. CAPITAL ADEQUACY. If after the date hereof any Bank or the Agent
determines that (a) the adoption of or change in any law, governmental rule,
regulation, policy, guideline or directive (whether or not having the force of
law) regarding capital requirements for banks or bank holding companies or any
change in the interpretation or application thereof by a court or governmental
authority with appropriate jurisdiction, or (b) compliance by such Bank or the
Agent or any corporation controlling such Bank or the Agent with any law,
governmental rule, regulation, policy, guideline or directive (whether or not
having the force of law) of any such entity regarding capital adequacy, has the

<PAGE>   36
                                      -29-


effect of reducing the return on such Bank's or the Agent's commitment with
respect to any Revolving Credit Loans to a level below that which such Bank or
the Agent could have achieved but for such adoption, change or compliance
(taking into consideration such Bank's or the Agent's then existing policies
with respect to capital adequacy and assuming full utilization of such entity's
capital) by any amount deemed by such Bank or (as the case may be) the Agent to
be material, then such Bank or the Agent may notify the Borrower of such fact.
To the extent that the amount of such reduction in the return on capital is not
reflected in the Base Rate, the Borrower and such Bank shall thereafter attempt
to negotiate in good faith, within thirty (30) days of the day on which the
Borrower receives such notice, an adjustment payable hereunder that will
adequately compensate such Bank in light of these circumstances. If the Borrower
and such Bank are unable to agree to such adjustment within thirty (30) days of
the date on which the Borrower receives such notice, then commencing on the date
of such notice (but not earlier than the effective date of any such increased
capital requirement), the fees payable hereunder shall increase by an amount
that will, in such Bank's reasonable determination, provide adequate
compensation. Each Bank shall allocate such cost increases among its customers
in good faith and on an equitable basis.

         5.9. CERTIFICATE. A certificate setting forth any additional amounts
payable pursuant to Sections 5.7 or 5.8 and a brief explanation of such amounts
which are due, submitted by any Bank or the Agent to the Borrower, shall be
conclusive, absent manifest error, that such amounts are due and owing.

         5.10. INDEMNITY. The Borrower agrees to indemnify each Bank and to hold
each Bank harmless from and against any loss, cost or expense (including loss of
anticipated profits) that such Bank may sustain or incur as a consequence of (a)
default by the Borrower in payment of the principal amount of or any interest on
any Eurodollar Rate Loans as and when due and payable, including any such loss
or expense arising from interest or fees payable by such Bank to lenders of
funds obtained by it in order to maintain its Eurodollar Rate Loans, (b) default
by the Borrower in making a borrowing or conversion after the Borrower has given
(or is deemed to have given) a Loan Request or a Conversion Request relating
thereto in accordance with Section 2.6 or Section 2.7 or (c) the making of any
payment of a Eurodollar Rate Loan or the making of any conversion of any such
Eurodollar Rate Loan to a Base Rate Loan on a day that is not the last day of
the applicable Interest Period with respect thereto, including interest or fees
payable by such Bank to lenders of funds obtained by it in order to maintain any
such Eurodollar Rate Loans.

         5.11.  INTEREST AFTER DEFAULT.

                  5.11.1. OVERDUE AMOUNTS. Overdue principal and (to the extent
         permitted by applicable law) interest on the Revolving Credit Loans and
         all other overdue amounts payable hereunder or under any of the other
         Loan Documents shall bear interest compounded monthly and payable on
         demand at a rate per annum equal to two percent (2%) above the Base

<PAGE>   37
                                      -30-


         Rate until such amount shall be paid in full (after as well as before
         judgment).

                  5.11.2. AMOUNTS NOT OVERDUE. During the continuance of a
         Default or an Event of Default the principal of the Revolving Credit
         Loans not overdue shall, until such Default or Event of Default has
         been cured or remedied or such Default or Event of Default has been
         waived by the Majority Banks pursuant to Section 26, bear interest at a
         rate per annum equal to the greater of (a) four percent (4%) above the
         rate of interest otherwise applicable to such Revolving Credit Loans
         pursuant to Section 2.5 and (b) the rate of interest applicable to
         overdue principal pursuant to Section 5.11.1.

                                 6. GUARANTIES.

         6.1. GUARANTIES OF DOMESTIC SUBSIDIARIES. The Obligations shall be
jointly and severally guaranteed by the Guarantors pursuant to the terms of the
Guaranty.

         6.2. NEW DOMESTIC SUBSIDIARIES. In the event any new Domestic
Subsidiary is formed or acquired after the Closing Date, such new Domestic
Subsidiary shall, immediately upon becoming a Subsidiary, become a party to the
Guaranty, pursuant to which such Domestic Subsidiary guarantees all of the
Obligations to the Agent and the Banks.

                       7. REPRESENTATIONS AND WARRANTIES.

         The Borrower represents and warrants to the Banks and the Bank Agents
as follows:

         7.1.  CORPORATE AUTHORITY.

                  7.1.1. INCORPORATION; GOOD STANDING. Each of the Borrower and
         its Subsidiaries (a) is a corporation duly organized, validly existing
         and in good standing under the laws of its state of incorporation, (b)
         has all requisite corporate power to own its property and conduct its
         business as now conducted and as presently contemplated, and (c) is in
         good standing as a foreign corporation and is duly authorized to do
         business in each jurisdiction where such qualification is necessary
         except where a failure to be so qualified would not have a materially
         adverse effect on the business, assets or financial condition of the
         Borrower or such Subsidiary.

                  7.1.2. AUTHORIZATION. The execution, delivery and performance
         of this Credit Agreement and the other Loan Documents to which the
         Borrower or any of its Domestic Subsidiaries is or is to become a party
         and the transactions contemplated hereby and thereby (a) are within the
         corporate authority of such Person, (b) have been duly authorized by
         all

<PAGE>   38
                                      -31-


         necessary corporate proceedings, (c) do not conflict with or result in
         any breach or contravention of any provision of law, statute, rule or 
         regulation to which the Borrower or any of its Domestic Subsidiaries is
         subject or any judgment, order, writ, injunction, license or permit
         applicable to the Borrower or any of its Domestic Subsidiaries and (d)
         do not conflict with any provision of the corporate charter or bylaws
         of, or any agreement or other instrument binding upon, the Borrower or
         any of its Domestic Subsidiaries.

                  7.1.3. ENFORCEABILITY. The execution and delivery of this
         Credit Agreement and the other Loan Documents to which the Borrower or
         any of its Domestic Subsidiaries is or is to become a party will result
         in valid and legally binding obligations of such Person enforceable
         against it in accordance with the respective terms and provisions
         hereof and thereof, except as enforceability is limited by bankruptcy,
         insolvency, reorganization, moratorium or other laws relating to or
         affecting generally the enforcement of creditors' rights and except to
         the extent that availability of the remedy of specific performance or
         injunctive relief is subject to the discretion of the court before
         which any proceeding therefor may be brought.

         7.2. GOVERNMENTAL APPROVALS. The execution, delivery and performance by
the Borrower and any of its Domestic Subsidiaries of this Credit Agreement and
the other Loan Documents to which the Borrower or any of its Domestic
Subsidiaries is or is to become a party and the transactions contemplated hereby
and thereby do not require the approval or consent of, or filing with, any
governmental agency or authority other than those already obtained.

         7.3. TITLE TO PROPERTIES; LEASES. Except as indicated on Schedule 7.3
hereto, the Borrower and its Subsidiaries own all of the assets reflected in the
consolidated balance sheet of the Borrower and its Subsidiaries as at the
Balance Sheet Date or acquired since that date (except property and assets sold
or otherwise disposed of in the ordinary course of business since that date),
subject to no rights of others, including any mortgages, leases, conditional
sales agreements, title retention agreements, liens or other encumbrances except
Permitted Liens.

         7.4.  FINANCIAL STATEMENTS AND PROJECTIONS.

                  7.4.1. FINANCIAL STATEMENTS. There has been furnished to each
         of the Banks a consolidated balance sheet and statement of cash flow of
         the Borrower and its Subsidiaries as at the Balance Sheet Date, and a
         consolidated statement of income of the Borrower and its Subsidiaries
         for the fiscal year then ended, certified by KPMG Peat Marwick. Such
         balance sheet and statement of income have been prepared in accordance
         with generally accepted accounting principles and fairly present the
         financial condition of the Borrower as at the close of business on the
         date 

<PAGE>   39
                                      -32-


         thereof and the results of operations for the fiscal year then ended.
         There are no contingent liabilities of the Borrower or any of its 
         Subsidiaries as of such date involving material amounts, known to the 
         officers of the Borrower, which were not disclosed in such balance
         sheet and the notes related thereto.

                  7.4.2. PROJECTIONS. The projections of the annual operating
         budgets of the Borrower and its Subsidiaries on a consolidated basis,
         balance sheets and cash flow statements for the 1996 to 1998 fiscal
         years, copies of which have been delivered to each Bank, disclose all
         assumptions made with respect to general economic, financial and market
         conditions used in formulating such projections. To the knowledge of
         the Borrower or any of its Subsidiaries, no facts exist that
         (individually or in the aggregate) would result in any material change
         in any of such projections or to the cash flow statements delivered to
         the Banks. The projections are based upon reasonable estimates and
         assumptions, have been prepared on the basis of the assumptions stated
         therein and reflect the reasonable estimates of the Borrower and its
         Subsidiaries of the results of operations and other information
         projected therein.

         7.5. NO MATERIAL CHANGES, ETC. Since the Balance Sheet Date there has
occurred no materially adverse change in the financial condition or business of
the Borrower and its Subsidiaries as shown on or reflected in the consolidated
balance sheet of the Borrower and its Subsidiaries as at the Balance Sheet Date,
or the consolidated statement of income for the fiscal year then ended, other
than changes in the ordinary course of business that have not had any materially
adverse effect either individually or in the aggregate on the business or
financial condition of the Borrower or any of its Subsidiaries. Since the
Balance Sheet Date, neither the Borrower nor any of its Subsidiaries has made
any Distributions.

         7.6. FRANCHISES, PATENTS, COPYRIGHTS, ETC. Each of the Borrower and its
Subsidiaries possesses all franchises, patents, copyrights, trademarks, trade
names, licenses and permits, and rights in respect of the foregoing, adequate
for the conduct of its business substantially as now conducted without known
conflict with any rights of others where such conflict could reasonably expected
to have a materially adverse effect on the business, assets or financial
condition of the Borrower or any of its Subsidiaries.

         7.7. LITIGATION. Except as set forth in Schedule 7.7 hereto, there are
no actions, suits, proceedings or investigations of any kind pending or
threatened against the Borrower or any of its Subsidiaries before any court,
tribunal or administrative agency or board that, if adversely determined, might,
either in any case or in the aggregate, materially adversely affect the
properties, assets, financial condition or business of the Borrower and its
Subsidiaries or materially impair the right of the Borrower and its
Subsidiaries, considered as a whole, to carry on business substantially as now
conducted by them, or result in 

<PAGE>   40
                                      -33-


any substantial liability not adequately covered by insurance, or for which 
adequate reserves are not maintained on the consolidated balance sheet of the 
Borrower and its Subsidiaries, or which question the validity of this Credit 
Agreement or any of the other Loan Documents, or any action taken or to be taken
pursuant hereto or thereto.

         7.8. NO MATERIALLY ADVERSE CONTRACTS, ETC. Neither the Borrower nor any
of its Subsidiaries is subject to any charter, corporate or other legal
restriction, or any judgment, decree, order, rule or regulation that has or is
expected in the future to have a materially adverse effect on the business,
assets or financial condition of the Borrower or any of its Subsidiaries.
Neither the Borrower nor any of its Subsidiaries is a party to any contract or
agreement that has or is expected, in the judgment of the Borrower's officers,
to have any materially adverse effect on the business of the Borrower or any of
its Subsidiaries.

         7.9. COMPLIANCE WITH OTHER INSTRUMENTS, LAWS, ETC. Neither the Borrower
nor any of its Subsidiaries is in violation of any provision of its charter
documents, bylaws, or any agreement or instrument to which it may be subject or
by which it or any of its properties may be bound or any decree, order,
judgment, statute, license, rule or regulation, in any of the foregoing cases in
a manner that could result in the imposition of substantial penalties or
materially and adversely affect the financial condition, properties or business
of the Borrower or any of its Subsidiaries.

         7.10. TAX STATUS. The Borrower and its Subsidiaries (a) have made or
filed all federal and state income and all other tax returns, reports and
declarations required by any jurisdiction to which any of them is subject, (b)
have paid all taxes and other governmental assessments and charges shown or
determined to be due on such returns, reports and declarations, except those
being contested in good faith and by appropriate proceedings and (c) have set
aside on their books provisions reasonably adequate for the payment of all taxes
for periods subsequent to the periods to which such returns, reports or
declarations apply. There are no unpaid taxes in any material amount claimed to
be due by the taxing authority of any jurisdiction, and the officers of the
Borrower know of no basis for any such claim.

         7.11. NO EVENT OF DEFAULT. No Default or Event of Default has occurred
and is continuing.

         7.12. HOLDING COMPANY AND INVESTMENT COMPANY ACTS. Neither the Borrower
nor any of its Subsidiaries is a "holding company", or a "subsidiary company" of
a "holding company", or an affiliate" of a "holding company", as such terms are
defined in the Public Utility Holding Company Act of 1935; nor is it an
"investment company", or an "affiliated company" or a "principal underwriter" of
an "investment company", as such terms are defined in the Investment Company Act
of 1940.

<PAGE>   41
                                      -34-


         7.13. ABSENCE OF FINANCING STATEMENTS, ETC. Except with respect to
Permitted Liens, there is no financing statement, security agreement, chattel
mortgage, real estate mortgage or other document filed or recorded with any
filing records, registry or other public office, that purports to cover, affect
or give notice of any present or possible future lien on, or security interest
in, any assets or property of the Borrower or any of its Subsidiaries or any
rights relating thereto.

         7.14. CERTAIN TRANSACTIONS. Except as set forth on Schedule 7.14 hereto
and except for arm's length transactions pursuant to which the Borrower or any
of its Subsidiaries makes payments in the ordinary course of business upon terms
no less favorable than the Borrower or such Subsidiary could obtain from third
parties or which could otherwise have a material adverse effect on the business,
assets or financial condition of the Borrower or any of its Subsidiaries, none
of the officers, directors, or employees of the Borrower or any of its
Subsidiaries is presently a party to any transaction with the Borrower or any of
its Subsidiaries (other than for services as employees, officers and directors),
including any contract, agreement or other arrangement providing for the
furnishing of services to or by, providing for rental of real or personal
property to or from, or otherwise requiring payments to or from any officer,
director or such employee or, to the knowledge of the Borrower, any corporation,
partnership, trust or other entity in which any officer, director, or any such
employee has a substantial interest or is an officer, director, trustee or
partner.

         7.15.  EMPLOYEE BENEFIT PLANS.

                  7.15.1. IN GENERAL. Each Employee Benefit Plan has been
         maintained and operated in compliance in all material respects with the
         provisions of ERISA and, to the extent applicable, the Code, including
         but not limited to the provisions thereunder respecting prohibited
         transactions. The Borrower has heretofore delivered to the Agent the
         most recently completed annual report, Form 5500, with all required
         attachments, and actuarial statement required to be submitted under
         Section 103(d) of ERISA, with respect to each Guaranteed Pension Plan.

                  7.15.2. TERMINABILITY OF WELFARE PLANS. Under each Employee
         Benefit Plan which is an employee welfare benefit plan within the
         meaning of Section 3(1) or Section 3(2)(B) of ERISA, no benefits are
         due unless the event giving rise to the benefit entitlement occurs
         prior to plan termination (except as required by Title I, Part 6 of
         ERISA). The Borrower or an ERISA Affiliate, as appropriate, may
         terminate each such Plan at any time (or at any time subsequent to the
         expiration of any applicable bargaining agreement) in the discretion of
         the Borrower or such ERISA Affiliate without liability to any Person.

<PAGE>   42
                                      -35-


                  7.15.3. GUARANTEED PENSION PLANS. Each contribution required
         to be made to a Guaranteed Pension Plan, whether required to be made to
         avoid the incurrence of an accumulated funding deficiency, the notice
         or lien provisions of Section 302(f) of ERISA, or otherwise, has been
         timely made. No waiver of an accumulated funding deficiency or
         extension of amortization periods has been received with respect to any
         Guaranteed Pension Plan. No liability to the PBGC (other than required
         insurance premiums, all of which have been paid) has been incurred by
         the Borrower or any ERISA Affiliate with respect to any Guaranteed
         Pension Plan and there has not been any ERISA Reportable Event, or any
         other event or condition which presents a material risk of termination
         of any Guaranteed Pension Plan by the PBGC. Based on the latest
         valuation of each Guaranteed Pension Plan (which in each case occurred
         within twelve months of the date of this representation), and on the
         actuarial methods and assumptions employed for that valuation, the
         aggregate benefit liabilities of all such Guaranteed Pension Plans
         within the meaning of Section 4001 of ERISA did not exceed the
         aggregate value of the assets of all such Guaranteed Pension Plans,
         disregarding for this purpose the benefit liabilities and assets of any
         Guaranteed Pension Plan with assets in excess of benefit liabilities.

                  7.15.4. MULTIEMPLOYER PLANS. Neither the Borrower nor any
         ERISA Affiliate has incurred any material liability (including
         secondary liability) to any Multiemployer Plan as a result of a
         complete or partial withdrawal from such Multiemployer Plan under
         Section 4201 of ERISA or as a result of a sale of assets described in
         Section 4204 of ERISA. Neither the Borrower nor any ERISA Affiliate has
         been notified that any Multiemployer Plan is in reorganization or
         insolvent under and within the meaning of Section 4241 or Section 4245
         of ERISA or that any Multiemployer Plan intends to terminate or has
         been terminated under Section 4041A of ERISA.

         7.16. REGULATIONS U AND X. The proceeds of the Revolving Credit Loans
shall be used for working capital and general corporate purposes. The Borrower
will obtain Letters of Credit solely for working capital and general corporate
purposes. No portion of any Revolving Credit Loan is to be used, and no portion
of any Letter of Credit is to be obtained, for the purpose of purchasing or
carrying any "margin security" or "margin stock" as such terms are used in
Regulations U and X of the Board of Governors of the Federal Reserve System, 12
C.F.R. Parts 221 and 224.

         7.17. ENVIRONMENTAL COMPLIANCE. To the best of the Borrower's
knowledge, based upon a reasonable investigation, the Borrower has determined
that:

                  (a) none of the Borrower, its Subsidiaries or any operator of
         the Real Estate or any operations thereon is in violation, or alleged
         violation, of any judgment, decree, order, law, license, rule or
         regulation pertaining to environmental matters, including without
         limitation, those arising 

<PAGE>   43
                                      -36-


         under the Resource Conservation and Recovery Act ("RCRA"), the
         Comprehensive Environmental Response, Compensation and Liability Act of
         1980 as amended ("CERCLA"), the Superfund Amendments and
         Reauthorization Act of 1986 ("SARA"), the Federal Clean Water Act, the
         Federal Clean Air Act, the Toxic Substances Control Act, or any state
         or local statute, regulation, ordinance, order or decree relating to
         health, safety or the environment (hereinafter "Environmental Laws"),
         which violation would have a material adverse effect on the environment
         or the business, assets or financial condition of the Borrower or any
         of its Subsidiaries;

                  (b) neither the Borrower nor any of its Subsidiaries has
         received notice from any third party including, without limitation, any
         federal, state or local governmental authority, (i) that any one of
         them has been identified by the United States Environmental Protection
         Agency ("EPA") as a potentially responsible party under CERCLA with
         respect to a site listed on the National Priorities List, 40 C.F.R.
         Part 300 Appendix B; (ii) that any hazardous waste, as defined by 42
         U.S.C. Section 6903(5), any hazardous substances as defined by 42
         U.S.C. Section 9601(14), any pollutant or contaminant as defined by 42
         U.S.C. Section 9601(33) and any toxic substances, oil or hazardous
         materials or other chemicals or substances regulated by any
         Environmental Laws ("Hazardous Substances") which any one of them has
         generated, transported or disposed of has been found at any site at
         which a federal, state or local agency or other third party has
         conducted or has ordered that any Borrower or any of its Subsidiaries
         conduct a remedial investigation, removal or other response action
         pursuant to any Environmental Law; or (iii) except to the extent that
         the following would not have a material adverse effect on the business,
         assets or financial condition of the Borrower or any of its
         Subsidiaries, that it is or shall be a named party to any claim,
         action, cause of action, complaint, or legal or administrative
         proceeding (in each case, contingent or otherwise) arising out of any
         third party's incurrence of costs, expenses, losses or damages of any
         kind whatsoever in connection with the release of Hazardous Substances;

                  (c) except as set forth on Schedule 7.17 attached hereto: (i)
         no portion of the Real Estate has been used for the handling,
         processing, storage or disposal of Hazardous Substances except in
         accordance with applicable Environmental Laws the noncompliance with
         which would have a material adverse effect on the business, assets or
         financial condition of the Borrower and its Subsidiaries; and no
         underground tank or other underground storage receptacle for Hazardous
         Substances is located on any portion of the Real Estate in violation of
         any Environmental Laws the noncompliance with which would have a
         material adverse effect on the business, assets or financial condition
         of the Borrower and its Subsidiaries; (ii) in the course of any
         activities conducted by the Borrower, its Subsidiaries or operators of
         its properties, no Hazardous Substances have been generated or are
         being used on the 

<PAGE>   44
                                      -37-


         Real Estate except in accordance in all material respects with
         applicable Environmental Laws; (iii) there have been no releases (i.e.
         any past or present releasing, spilling, leaking, pumping, pouring,
         emitting, emptying, discharging, injecting, escaping, disposing or
         dumping) or threatened releases of Hazardous Substances on, upon, into
         or from the properties of the Borrower or its Subsidiaries, which
         releases would have a material adverse effect on the value of the
         business, assets or financial condition of the Borrower or any of its
         Subsidiaries; (iv) to the best of the Borrower's knowledge, there have
         been no releases on, upon, from or into any real property in the
         vicinity of any of the Real Estate which, through soil or groundwater
         contamination, may have come to be located on, and which would have a
         material adverse effect on the value of, the Real Estate; and (v) in
         addition, except to the extent that the following would not have a
         materially adverse effect on the business, assets or financial
         condition of the Borrower or any of its Subsidiaries, any Hazardous
         Substances that have been generated on any of the Real Estate have been
         transported offsite only by carriers having an identification number
         issued by the EPA, treated or disposed of only by treatment or disposal
         facilities maintaining valid permits as required under applicable
         Environmental Laws, which transporters and facilities have been and
         are, to the best of the Borrower's knowledge, operating in compliance
         with such permits and applicable Environmental Laws; and

                  (d) None of the Borrower and its Subsidiaries or any of the
         Real Estate is subject to any applicable environmental law requiring
         the performance of Hazardous Substances site assessments, or the
         removal or remediation of Hazardous Substances, or the giving of notice
         to any governmental agency or the recording or delivery to other
         Persons of an environmental disclosure document or statement by virtue
         of the transactions set forth herein and contemplated hereby, or as a
         condition to the effectiveness of any other transactions contemplated
         hereby.

         7.18. SUBSIDIARIES, ETC. Schedule 7.18(a) sets forth the only
Subsidiaries of the Borrower. Except as set forth on Schedule 7.18(b) hereto,
neither the Borrower nor any Subsidiary of the Borrower is engaged in any joint
venture or partnership with any other Person.

         7.19. CHIEF EXECUTIVE OFFICE. The Borrower's chief executive office is
at 8105 Irvine Center Drive, Irvine, California 92718, at which location its
books and records are kept.

         7.20. FISCAL YEAR. The Borrower and each of its Subsidiaries has a
fiscal year which is the twelve (12) months ending on the last Saturday of every
June of each year.

<PAGE>   45
                                      -38-


         7.21. DISCLOSURE. No representation or warranty made by the Borrower in
this Credit Agreement or in any agreement, instrument, document, certificate,
statement or letter furnished to either Bank Agent or any Bank by or on behalf
of the Borrower in connection with any of the transactions contemplated by any
of the Loan Documents contains any untrue statement of a material fact or omits
to state a material fact necessary in order to make the statements contained
therein not misleading in light of the circumstances in which they were made.

         7.22. INSURANCE. The Borrower and each of its Subsidiaries maintains
with financially sound and reputable insurers insurance with respect to its
properties and businesses against such casualties and contingencies as are in
accordance with sound business practice, with the details of such coverage being
more fully described on Schedule 7.22 hereto.

                    8. AFFIRMATIVE COVENANTS OF THE BORROWER.

         The Borrower covenants and agrees that, so long as any Revolving Credit
Loan, Unpaid Reimbursement Obligation, Letter of Credit or Revolving Credit Note
is outstanding or any Bank has any obligation to make any Revolving Credit Loans
or the Agent has any obligation to issue, extend or renew any Letters of Credit:

         8.1. PUNCTUAL PAYMENT. The Borrower will duly and punctually pay or
cause to be paid the principal and interest on the Revolving Credit Loans, all
Reimbursement Obligations, the Letter of Credit Fees, the Commitment Fees, the
administrative fee and all other amounts provided for in this Credit Agreement
and the other Loan Documents to which the Borrower or any of its Subsidiaries is
a party, all in accordance with the terms of this Credit Agreement and such
other Loan Documents.

         8.2. MAINTENANCE OF OFFICE. The Borrower will maintain its chief
executive office at 8105 Irvine Center Drive, Irvine, California 92718, or at
such other place in the United States of America as the Borrower shall designate
upon written notice to the Agent, where notices, presentations and demands to or
upon the Borrower in respect of the Loan Documents to which the Borrower is a
party may be given or made.

         8.3. RECORDS AND ACCOUNTS. The Borrower will (a) keep, and cause each
of its Subsidiaries to keep, true and accurate records and books of account in
which full, true and correct entries will be made in accordance with generally
accepted accounting principles and (b) maintain adequate accounts and reserves
for all taxes (including income taxes), depreciation, depletion, obsolescence
and amortization of its properties and the properties of its Subsidiaries,
contingencies, and other reserves.

<PAGE>   46
                                      -39-

           8.4 FINANCIAL STATEMENTS, CERTIFICATES AND INFORMATION. The Borrower
will deliver to each of the Banks:

                     (a) as soon as practicable, but in any event not later than
           ninety (90) days after the end of each fiscal year of the Borrower,
           the consolidated balance sheet of the Borrower and its Subsidiaries
           and the consolidating balance sheet of the Borrower and its
           Subsidiaries, each as at the end of such year, and the related
           consolidated statement of income and consolidated statement of cash
           flow and consolidating statement of income and consolidating
           statement of cash flow for such year, each setting forth in
           comparative form the figures for the previous fiscal year and all
           such consolidated and consolidating statements to be in reasonable
           detail, prepared in accordance with generally accepted accounting
           principles, and certified without qualification by KPMG Peat Marwick
           or by other independent certified public accountants satisfactory to
           the Agent, together with a written statement from such accountants to
           the effect that they have read a copy of this Credit Agreement, and
           that, in making the examination necessary to said certification, they
           have obtained no knowledge of any Default or Event of Default, or, if
           such accountants shall have obtained knowledge of any then existing
           Default or Event of Default they shall disclose in such statement any
           such Default or Event of Default; provided that such accountants
           shall not be liable to the Banks for failure to obtain knowledge of
           any Default or Event of Default;

                     (b) as soon as practicable, but in any event not later than
           forty-five (45) days after the end of each of the fiscal quarters of
           the Borrower, copies of the unaudited consolidated balance sheet of
           the Borrower and its Subsidiaries as at the end of such quarter, and
           the related consolidated statement of income and consolidated
           statement of cash flow for the portion of the Borrower's fiscal year
           then elapsed, all in reasonable detail and prepared in accordance
           with generally accepted accounting principles, together with a
           certification by the principal financial or accounting officer of the
           Borrower that the information contained in such financial statements
           fairly presents the financial position of the Borrower and its
           Subsidiaries on the date thereof (subject to year-end adjustments);

                     (c) simultaneously with the delivery of the financial
           statements referred to in subsections (a) and (b) above, a statement
           certified by the principal financial or accounting officer of the
           Borrower in substantially the form of Exhibit C hereto (the
           "Compliance Certificate") and setting forth in reasonable detail
           computations evidencing compliance with the covenants contained in
           Section 10 and (if applicable) reconciliations to reflect changes in
           generally accepted accounting principles since the Balance Sheet
           Date;


<PAGE>   47
                                      -40-

                     (d) contemporaneously with the filing or mailing thereof,
           copies of all material of a financial nature filed with the
           Securities and Exchange Commission or sent to the stockholders of the
           Borrower;

                     (e) as soon as practicable, but in any event not later than
           thirty days prior to the end of each fiscal year, the budget of the
           Borrower for the next fiscal year, and from time to time upon the
           reasonable request of the Bank Agents, projections of the Borrower
           and its Subsidiaries updating those projections delivered to the
           Banks and referred to in Section 7.4.2 or, if applicable, updating
           any later such projections delivered in response to this Section
           8.4(e); and

                     (f) from time to time such other financial data and
           information (including accountants and management letters) as either
           of the Bank Agents or any Bank may reasonably request.

           8.5.  NOTICES.

                     8.5.1. DEFAULTS. The Borrower will promptly notify the
           Agent and each of the Banks in writing of the occurrence of any
           Default or Event of Default. If any Person shall give any notice or
           take any other action in respect of a claimed default (whether or not
           constituting an Event of Default) under this Credit Agreement or any
           other note, evidence of indebtedness, indenture or other obligation
           to which or with respect to which the Borrower or any of its
           Subsidiaries is a party or obligor, whether as principal, guarantor,
           surety or otherwise, the Borrower shall forthwith give written notice
           thereof to the Agent and each of the Banks, describing the notice or
           action and the nature of the claimed default.

                     8.5.2. ENVIRONMENTAL EVENTS. The Borrower will promptly
           give notice to the Agent and each of the Banks (a) of any violation
           of any Environmental Law that the Borrower or any of its Subsidiaries
           reports in writing or is reportable by such Person in writing (or for
           which any written report supplemental to any oral report is made) to
           any federal, state or local environmental agency and (b) upon
           becoming aware thereof, of any inquiry, proceeding, investigation, or
           other action, including a notice from any agency of potential
           environmental liability, of any federal, state or local environmental
           agency or board, that has the potential to materially affect the
           assets, liabilities, financial conditions or operations of the
           Borrower or any of its Subsidiaries.




                     8.5.3. NOTICE OF LITIGATION AND JUDGMENTS. The Borrower
           will, and will cause each of its Subsidiaries to, give notice to the
           Agent and each of the Banks in writing within fifteen (15) days of
           becoming aware of any litigation or proceedings threatened in writing
           or any pending litigation and proceedings affecting the Borrower or
           any of its Subsidiaries or to which the Borrower or any of its
           Subsidiaries is or becomes a party involving an uninsured claim
           against the Borrower or any of its Subsidiaries that could reasonably
           be expected to have a materially adverse effect on the Borrower or
           any of its Subsidiaries and stating the nature and status of such
           litigation or proceedings. The Borrower will, and will cause each of
           its Subsidiaries to, give notice to the Agent and each of the Banks,
           in writing, in form and detail satisfactory to the Agent, within ten
           (10) days of any judgment not covered by insurance, final or
           otherwise, against the Borrower or

<PAGE>   48
                                      -41-

           any of its Subsidiaries in an amount in excess of $5,000,000.

           8.6. CORPORATE EXISTENCE; MAINTENANCE OF PROPERTIES. The Borrower
will do or cause to be done all things necessary to preserve and keep in full
force and effect its corporate existence, rights and franchises and those of its
Subsidiaries and will not, and will not cause or permit any of its Subsidiaries
to, convert to a limited liability company. It (a) will cause all of its
properties and those of its Subsidiaries used or useful in the conduct of its
business or the business of its Subsidiaries to be maintained and kept in good
condition, repair and working order and supplied with all necessary equipment,
(b) will cause to be made all necessary repairs, renewals, replacements,
betterments and improvements thereof, all as in the judgment of the Borrower may
be necessary so that the business carried on in connection therewith may be
properly and advantageously conducted at all times, and (c) will, and will cause
each of its Subsidiaries to, continue to engage primarily in the businesses now
conducted by them and in related businesses; provided that nothing in this
Section 8.6 shall prevent the Borrower from discontinuing the operation and
maintenance of any of its properties or any of those of its Subsidiaries if such
discontinuance is, in the judgment of the Borrower, desirable in the conduct of
its or their business and that do not in the aggregate materially adversely
affect the business of the Borrower and its Subsidiaries on a consolidated
basis.

           8.7. INSURANCE. The Borrower will, and will cause each of its
Subsidiaries to, maintain with financially sound and reputable insurers
insurance with respect to its properties and business against such casualties
and contingencies as shall be in accordance with the general practices of
businesses engaged in similar activities in similar geographic areas and in
amounts, containing such terms, in such forms and for such periods as may be
reasonable and prudent.

           8.8. TAXES. The Borrower will, and will cause each of its
Subsidiaries to, duly pay and discharge, or cause to be paid and discharged,
before the same shall become overdue, all taxes, assessments and other
governmental charges imposed upon it and its real properties, sales and
activities, or any part thereof, or upon the income or profits therefrom, as
well as all claims for labor, materials, or supplies that if unpaid might by law
become a lien or charge upon any of its property; provided that any such tax,
assessment, charge, levy or claim need not be paid if the validity or amount
thereof shall currently be

<PAGE>   49
                                      -42-

contested in good faith by appropriate proceedings and if the Borrower or such
Subsidiary shall have set aside on its books adequate reserves with respect
thereto; and provided further that the Borrower and each Subsidiary of the
Borrower will pay all such taxes, assessments, charges, levies or claims
forthwith upon the commencement of proceedings to foreclose any lien that may
have attached as security therefor.

           8.9.  INSPECTION OF PROPERTIES AND BOOKS, ETC.

           8.9.1. GENERAL. The Borrower shall permit the Banks, through the
Agent or any of the Banks' other designated representatives, to visit and
inspect any of the properties of the Borrower or any of its Subsidiaries, to
examine the books of account of the Borrower and its Subsidiaries (and to make
copies thereof and extracts therefrom), and to discuss the affairs, finances and
accounts of the Borrower and its Subsidiaries with, and to be advised as to the
same by, its and their officers, all at such reasonable times and intervals as
the Agent or any Bank may reasonably request.

           8.9.2. APPRAISALS; COMMERCIAL FINANCE EXAMINATIONS. No more
frequently than once each calendar year, or more frequently as determined by the
Agent if an Event of Default shall have occurred and be continuing, upon the
request of the Agent, the Borrower will obtain and deliver to the Agent
appraisal reports in form and substance and from appraisers satisfactory to the
Agent, stating (a) the then current fair market, orderly liquidation and forced
liquidation values of all or any portion of the equipment or real estate owned
by the Borrower or any of its Subsidiaries and (b) the then current business
value of each of the Borrower and its Subsidiaries. All such appraisals shall be
conducted and made at the expense of the Borrower. In addition, no more
frequently than once each calendar year, or more frequently as determined by the
Agent if an Event of Default shall have occurred and be continuing, the Agent
shall be entitled to conduct a commercial finance examination of the Borrower at
its Subsidiaries, such commercial finance examinations to be at the Borrower's
expense

           8.9.3. COMMUNICATIONS WITH ACCOUNTANTS. The Borrower authorizes the
Agent and, if accompanied by the Agent, the Banks to communicate directly with
the Borrower's independent certified public accountants and authorizes such
accountants to disclose to the Agent and the Banks any and all financial
statements and other supporting financial documents and schedules including
copies of any management letter with respect to the business, financial
condition and other affairs of the Borrower or any of its Subsidiaries. At the
request of the Agent, the Borrower shall deliver a letter addressed to such
accountants instructing them to comply with the provisions of this Section 8.9.3

<PAGE>   50
                                      -43-

           8.10. COMPLIANCE WITH LAWS, CONTRACTS, LICENSES, AND PERMITS. The
Borrower will, and will cause each of its Subsidiaries to, comply with (a) the
applicable laws and regulations wherever its business is conducted, including
all Environmental Laws, unless the failure to so comply would not have a
material adverse effect on the business, assets or financial condition of the
Borrower or such Subsidiary, (b) the provisions of its charter documents and
by-laws, (c) all agreements and instruments by which it or any of its properties
may be bound, unless the failure to so comply would not have a material adverse
effect on the business, assets or financial condition of the Borrower or such
Subsidiary and (d) all applicable decrees, orders, and judgments, unless the
failure to so comply would not have a material adverse effect on the business,
assets or financial condition of the Borrower or such Subsidiary. If any
authorization, consent, approval, permit or license from any officer, agency or
instrumentality of any government shall become necessary or required in order
that the Borrower or any of its Subsidiaries may fulfill any of its obligations
hereunder or any of the other Loan Documents to which the Borrower or such
Subsidiary is a party, the Borrower will, or (as the case may be) will cause
such Subsidiary to, immediately take or cause to be taken all reasonable steps
within the power of the Borrower or such Subsidiary to obtain such
authorization, consent, approval, permit or license and furnish the Agent and
the Banks with evidence thereof.

           8.11. EMPLOYEE BENEFIT PLANS. The Borrower will (a) promptly upon
filing the same with the Department of Labor or Internal Revenue Service furnish
to the Agent a copy of the most recent actuarial statement required to be
submitted under Section 103(d) of ERISA and Annual Report, Form 5500, with all
required attachments, in respect of each Guaranteed Pension Plan and (b)
promptly upon receipt or dispatch, furnish to the Agent any notice, report or
demand sent or received in respect of a Guaranteed Pension Plan under Section
Section 302, 4041, 4042, 4043, 4063, 4065, 4066 and 4068 of ERISA, or in respect
of a Multiemployer Plan, under Section Section 4041A, 4202, 4219, 4242, or 4245
of ERISA.

           8.12. USE OF PROCEEDS. The Borrower will use the proceeds of the
Revolving Credit Loans solely for working capital and general corporate purposes
(including, without limitation, the repurchase by the Borrower of its capital
stock). The Borrower will obtain Letters of Credit solely for working capital
and general corporate purposes.

           8.13. FURTHER ASSURANCES. The Borrower will, and will cause each of
its Subsidiaries to, cooperate with the Banks and the Agent and execute such
further instruments and documents as the Banks or the Agent shall reasonably
request to carry out to their satisfaction the transactions contemplated by this
Credit Agreement and the other Loan Documents.

<PAGE>   51
                                      -44-

                 9. CERTAIN NEGATIVE COVENANTS OF THE BORROWER.

           The Borrower covenants and agrees that, so long as any Revolving
Credit Loan, Unpaid Reimbursement Obligation, Letter of Credit or Revolving
Credit Note is outstanding or any Bank has any obligation to make any Revolving
Credit Loans or the Agent has any obligations to issue, extend or renew any
Letters of Credit:

           9.1. RESTRICTIONS ON INDEBTEDNESS. The Borrower will not, and will
not permit any of its Subsidiaries to, create, incur, assume, guarantee or be or
remain liable, contingently or otherwise, with respect to any Indebtedness other
than:

                     (a) Indebtedness to the Banks and the Agent arising under
           any of the Loan Documents;

                     (b) current liabilities of the Borrower or such Subsidiary
           incurred in the ordinary course of business not incurred through (i)
           the borrowing of money, or (ii) the obtaining of credit except for
           credit on an open account basis customarily extended and in fact
           extended in connection with normal purchases of goods and services;

                     (c) Indebtedness in respect of taxes, assessments,
           governmental charges or levies and claims for labor, materials and
           supplies to the extent that payment therefor shall not at the time be
           required to be made in accordance with the provisions of Section 8.8;

                     (d) Indebtedness in respect of judgments or awards that
           have been in force for less than the applicable period for taking an
           appeal so long as execution is not levied thereunder or in respect of
           which the Borrower or such Subsidiary shall at the time in good faith
           be prosecuting an appeal or proceedings for review and in respect of
           which a stay of execution shall have been obtained pending such
           appeal or review;

                     (e) endorsements for collection, deposit or negotiation and
           warranties of products or services, in each case incurred in the
           ordinary course of business;

                     (f) obligations under Capitalized Leases not exceeding
           $50,000,000 in aggregate amount in any fiscal year;

                     (g) Indebtedness incurred in connection with the
           acquisition after the date hereof of any real or personal property by
           the Borrower or such Subsidiary, provided that the aggregate
           principal amount of such Indebtedness of the Borrower and its
           Subsidiaries shall not exceed the aggregate amount of $5,000,000 at
           any one time;

<PAGE>   52
                                      -45-

                     (h) Indebtedness existing on the date hereof and listed and
           described on Schedule 9.1 hereto;

                     (i) Indebtedness of a Domestic Subsidiary of the Borrower
           existing on the Closing Date to the Borrower;

                     (j) Indebtedness of a Foreign Subsidiary of the Borrower
           existing on the Closing Date to the Borrower, provided that the
           aggregate principal amount of such Indebtedness of all the Foreign
           Subsidiaries to the Borrower does not exceed $30,000,000 at any time;
           and

                     (k) Indebtedness of the Borrower or any of its Subsidiaries
           (other than Indebtedness of a Foreign Subsidiary to the Borrower or
           any Domestic Subsidiary) not otherwise permitted hereunder, provided,
           that the aggregate amount of all such Indebtedness does not exceed
           $25,000,000 in the aggregate at any time.

           9.2. RESTRICTIONS ON LIENS. The Borrower will not, and will not
permit any of its Subsidiaries to, (a) create or incur or suffer to be created
or incurred or to exist any lien, encumbrance, mortgage, pledge, charge,
restriction or other security interest of any kind upon any of its property or
assets of any character whether now owned or hereafter acquired, or upon the
income or profits therefrom; (b) transfer any of such property or assets or the
income or profits therefrom for the purpose of subjecting the same to the
payment of Indebtedness or performance of any other obligation in priority to
payment of its general creditors; (c) acquire, or agree or have an option to
acquire, any property or assets upon conditional sale or other title retention
or purchase money security agreement, device or arrangement; (d) suffer to exist
for a period of more than thirty (30) days after the same shall have been
incurred any Indebtedness or claim or demand against it that if unpaid might by
law or upon bankruptcy or insolvency, or otherwise, be given any priority
whatsoever over its general creditors; or (e) sell, assign, pledge or otherwise
transfer any accounts, contract rights, general intangibles, chattel paper or
instruments, with or without recourse; provided that the Borrower and any
Subsidiary of the Borrower may create or incur or suffer to be created or
incurred or to exist:

                     (i) liens in favor of the Borrower on all or part of the
           assets of Subsidiaries of the Borrower securing Indebtedness owing by
           Subsidiaries of the Borrower to the Borrower;

                     (ii) liens to secure taxes, assessments and other
           government charges in respect of obligations not overdue or liens on
           properties other than Mortgaged Properties to secure claims for
           labor, material or supplies in respect of obligations not overdue;

                     (iii) deposits or pledges made in connection with, or to
           secure payment of, workmen's compensation, unemployment insurance,
           old age pensions or other social security obligations;

<PAGE>   53
                                      -46-

                     (iv) liens on properties in respect of judgments or awards,
           the Indebtedness with respect to which is permitted by Section
           9.1(d);

                     (v) liens of carriers, warehousemen, mechanics and
           materialmen, and other like liens on properties, in existence less
           than 120 days from the date of creation thereof in respect of
           obligations not overdue;

                     (vi) encumbrances on Real Estate consisting of easements,
           rights of way, zoning restrictions, restrictions on the use of real
           property and defects and irregularities in the title thereto,
           landlord's or lessor's liens under leases to which the Borrower or a
           Subsidiary of the Borrower is a party, and other minor liens or
           encumbrances none of which in the opinion of the Borrower interferes
           materially with the use of the property affected in the ordinary
           conduct of the business of the Borrower and its Subsidiaries, which
           defects do not individually or in the aggregate have a materially
           adverse effect on the business of the Borrower individually or of the
           Borrower and its Subsidiaries on a consolidated basis;

                     (vii) liens existing on the date hereof and listed on
           Schedule 9.2 hereto;

                     (viii) purchase money security interests in or purchase
           money mortgages on real or personal property acquired after the date
           hereof to secure purchase money Indebtedness of the type and amount
           permitted by Section 9.1(g), incurred in connection with the
           acquisition of such property, which security interests or mortgages
           cover only the real or personal property so acquired;

                     (ix) liens in favor of any lender of Indebtedness permitted
           pursuant to Section 9.1 hereof, provided that the aggregate principal
           amount of all Indebtedness permitted to be secured pursuant to this
           Section 9.2(x) shall not exceed $10,000,000 in the aggregate
           outstanding at any one time.

           9.3. RESTRICTIONS ON INVESTMENTS. The Borrower will not, and will not
permit any of its Subsidiaries to, make or permit to exist or to remain
outstanding any Investment except Investments in:

                     (a) marketable direct or guaranteed obligations of the
           United States of America that mature within one (1) year from the
           date of purchase by the Borrower;

                     (b) demand deposits, certificates of deposit, bankers
           acceptances and time deposits of United States banks having total
           assets in excess of $1,000,000,000;

                     (c) securities commonly known as "commercial paper" issued
           by a corporation organized and existing under the laws of the United
           States of America or any state thereof that at the time of purchase
           have been rated

<PAGE>   54
                                      -47-

           and the ratings for which are not less than "P 1" if rated by Moody's
           Investors Services, Inc., and not less than "A 1" if rated by
           Standard and Poor's;

                     (d) Investments existing on the date hereof and listed on
           Schedule 9.3 hereto (including those Investments in the Strategic
           Partners set forth on Schedule 9.3);

                     (e) Investments with respect to Indebtedness permitted by
           Section 9.1(i) and (j) so long as such entities remain Subsidiaries
           of the Borrower;

                     (f) Investments consisting of the Guaranty or Investments
           by the Borrower in Subsidiaries of the Borrower existing on the
           Closing Date;

                     (g) Investments of the Borrower made after the Closing Date
           in Strategic Partners, provided that the aggregate amount of all such
           Investments made after the Closing Date shall not exceed $25,000,000
           at any time; and

                     (h) Investments made in the ordinary course of business
           consistent with past practices consisting (and not for speculative
           purposes) of contracts entered into for foreign exchange hedging
           purposes.

           9.4. DISTRIBUTIONS. The Borrower will not make any Distributions.

           9.5. MERGER, CONSOLIDATION AND DISPOSITION OF ASSETS.

                     9.5.1. MERGERS AND ACQUISITIONS. The Borrower will not, and
           will not permit any of its Subsidiaries to, become a party to any
           merger or consolidation, or agree to or effect any asset acquisition
           or stock acquisition (other than the acquisition of assets in the
           ordinary course of business consistent with past practices) except,
           so long as no Default or Event of Default has occurred and is
           continuing, or would exist after giving effect thereto, (a) the
           merger or consolidation of one or more of the Subsidiaries of the
           Borrower with and into the Borrower so long as the Borrower is the
           survivor; (b) the merger or consolidation of two or more Subsidiaries
           of the Borrower; and (c) other asset or stock acquisitions of Persons
           in the same or a similar line of business as the Borrower (the
           "Permitted Acquisitions") where (i) the Borrower has provided the
           Agent with thirty (30) days prior written notice of such Permitted
           Acquisition, which notice shall include a reasonably detailed
           description of such Permitted Acquisition; (ii) the business to be
           acquired would not subject the Bank Agents or the Banks to regulatory
           or third party approvals in connection with the exercise of its
           rights and remedies under this Credit Agreement or the other Loan
           Documents; (iii) the business and assets so acquired in such
           Permitted Acquisition shall be acquired by the Borrower free and
           clear of all liens (other than liens permitted by Section 9.2) and
           all

<PAGE>   55
                                      -48-

           Indebtedness (other than Indebtedness permitted by Section 9.1); (iv)
           no contingent obligations or liabilities will be incurred or assumed
           in connection with such Permitted Acquisition which could be expected
           to have a material adverse effect on the business, assets or
           financial condition of the Borrower and its Subsidiaries; (v) the
           Borrower has demonstrated to the satisfaction of the Agent, based on
           a pro forma Compliance Certificate, compliance with Section 10 on a
           pro forma basis immediately prior to and after giving effect to such
           Permitted Acquisition; (vi) the aggregate purchase price for any one
           Permitted Acquisition or a series of related Permitted Acquisitions
           does not exceed $50,000,000 and the aggregate purchase price for all
           Permitted Acquisitions does not exceed $200,000,000 during the term
           of this Credit Agreement; and (vii) the required majority of the
           Board of Directors of the target Person incumbent at the time such
           Permitted Acquisition is proposed has acquiesced, or the transaction
           is otherwise deemed in the reasonable judgment of the Banks to be a
           "friendly" acquisition.

                     9.5.2. DISPOSITION OF ASSETS. The Borrower will not, and
           will not permit any of its Subsidiaries to, become a party to or
           agree to or effect any disposition of assets, other than the
           disposition of assets in the ordinary course of business, consistent
           with past practices.

           9.6. SALE AND LEASEBACK. The Borrower will not, and will not permit
any of its Subsidiaries to, enter into any arrangement, directly or indirectly,
whereby the Borrower or any Subsidiary of the Borrower shall sell or transfer
any property owned by it in order then or thereafter to lease such property or
lease other property that the Borrower or any Subsidiary of the Borrower intends
to use for substantially the same purpose as the property being sold or
transferred, other than the sale or transfer and subsequent lease by the
Borrower or any Subsidiary of new equipment purchased by the Borrower or such
Subsidiary within ninety (90) days of such sale or transfer.

           9.7. COMPLIANCE WITH ENVIRONMENTAL LAWS. The Borrower will not, and
will not permit any of its Subsidiaries to, (a) use any of the Real Estate or
any portion thereof for the handling, processing, storage or disposal of
Hazardous Substances in violation of any Environmental Law the noncompliance
with which would have a material adverse effect on the business, assets or
financial condition of the Borrower or such Subsidiary, (b) cause or permit to
be located on any of the Real Estate any underground tank or other underground
storage receptacle for Hazardous Substances in violation of any Environmental
Law the noncompliance with which would have a material adverse effect on the
business, assets or financial condition of the Borrower or such Subsidiary, (c)
generate any Hazardous Substances on any of the Real Estate in violation of any
Environmental Law the noncompliance with which would have a material adverse
effect on the business, assets or financial condition of the Borrower or such
Subsidiary, (d) conduct any activity at any Real Estate or use any Real Estate
in any manner so as to cause a release (i.e.

<PAGE>   56
                                      -49-

releasing, spilling, leaking, pumping, pouring, emitting, emptying, discharging,
injecting, escaping, leaching, disposing or dumping) or threatened release of
Hazardous Substances on, upon or into the Real Estate or (e) otherwise conduct
any activity at any Real Estate or use any Real Estate in any manner that would
violate any Environmental Law or bring such Real Estate in violation of any
Environmental Law in each case if such violation would have a materially adverse
effect on the business, assets or financial condition of the Borrower or such
Subsidiary.

           9.8. EMPLOYEE BENEFIT PLANS. Neither the Borrower nor any ERISA
Affiliate will

                     (a) engage in any "prohibited transaction" within the
           meaning of Section 406 of ERISA or Section 4975 of the Code which
           could result in a material liability for the Borrower or any of its
           Subsidiaries; or

                     (b) permit any Guaranteed Pension Plan to incur an
           "accumulated funding deficiency", as such term is defined in Section
           302 of ERISA, whether or not such deficiency is or may be waived; or

                     (c) fail to contribute to any Guaranteed Pension Plan to an
           extent which, or terminate any Guaranteed Pension Plan in a manner
           which, could result in the imposition of a lien or encumbrance on the
           assets of the Borrower or any of its Subsidiaries pursuant to Section
           302(f) or Section 4068 of ERISA; or

                     (d) permit or take any action which would result in the
           aggregate benefit liabilities (with the meaning of Section 4001 of
           ERISA) of all Guaranteed Pension Plans exceeding the value of the
           aggregate assets of such Plans, disregarding for this purpose the
           benefit liabilities and assets of any such Plan with assets in excess
           of benefit liabilities.

           9.9. CHANGES IN TERMS OF CAPITAL STOCK. The Borrower will not, nor
will it permit any of its Subsidiaries to, effect or permit any change in or
amendment to any document or instrument pertaining to the terms of such Person's
capital stock unless such a change or amendment is of an immaterial or
ministerial nature that would not have any adverse effect on any of the Bank
Agents' or the Banks' rights or interests under the Loan Documents or the
Borrower's or any of its Subsidiaries' obligations under the Loan Documents to
which such Person is a party.

           9.10. FISCAL YEAR. The Borrower will not change the date of the end
of its fiscal year from that set forth in Section 7.20 hereof.

<PAGE>   57
                                      -50-

           9.11. NEGATIVE PLEDGES. The Borrower will not, nor will it permit any
Subsidiary to, enter into any agreement (excluding this Credit Agreement)
prohibiting the creation or assumption of any lien upon its properties, revenues
or assets or those of any of its Subsidiaries, whether now owned or hereafter
acquired, other than those agreements with Persons prohibiting any such lien on
assets in which such Person has a prior security interest which is permitted by
Section 9.2.

           9.12. TRANSACTIONS WITH AFFILIATES. The Borrower will not, nor will
it permit any Subsidiary to, enter into or cause, suffer or permit to exist (a)
any arrangement or contract with any of its other Affiliates of a nature
customarily entered into by Persons which are Affiliates of each other
(including management or similar contracts or arrangements relating to the
allocation of revenues, taxes and expenses or otherwise) requiring any payment
to be made by the Borrower or any of its Subsidiaries to any Affiliate unless
such arrangement is fair and equitable to the Borrower or such Subsidiary; or
(b) any other transaction, arrangement, contract with any of its other
Affiliates which would not be entered into by a prudent Person in the position
of the Borrower or such Subsidiary with, or which is on terms which are less
favorable than are obtainable from, any Person which is not one of its
Affiliates.

           9.13. UPSTREAM LIMITATIONS. The Borrower will not, nor will it permit
any Subsidiary to, enter into any agreement, contract, or arrangement (other
than the Credit Agreement and the other Loan Documents) restricting the ability
of any Subsidiary to pay or make dividends or distributions in cash or kind, to
make loans, advances or other payments of whatsoever nature or to make transfers
or distributions of all or any part of its assets to the Borrower.

           9.14. INCONSISTENT AGREEMENTS. The Borrower will not, nor will it
permit any Subsidiary to, enter into any agreement containing any provision
which would be violated or breached by the performance by the Borrower or such
Subsidiary of its obligations hereunder or under any of the other Loan
Documents.

                    10. FINANCIAL COVENANTS OF THE BORROWER.

           The Borrower covenants and agrees that, so long as any Revolving
Credit Loan, Unpaid Reimbursement Obligation, Letter of Credit or Revolving
Credit Note is outstanding or any Bank has any obligation to make any Revolving
Credit Loans or the Agent has any obligation to issue, extend or renew any
Letters of Credit:


           10.1. PROFITABLE OPERATIONS. The Borrower will not permit
Consolidated Net Income or Consolidated Net Operating Income for any two
consecutive fiscal quarters to be less than $1.00.

<PAGE>   58
                                      -51-

           10.2. FIXED RATE COVERAGE RATIO. The Borrower will not as at the end
of any fiscal quarter, permit the ratio of (a) the sum of (i) EBITDA for the
period of four (4) consecutive fiscal quarters ending on such date plus (ii)
Rental Obligations for the period of four (4) consecutive fiscal quarters ending
on such date to (b) the sum of (i) Consolidated Total Interest Expense for the
period of four (4) consecutive fiscal quarters ending on such date plus (ii)
Rental Obligations for the period of four (4) consecutive fiscal quarters ending
on such date, to be less than 2.00:1.00.

           10.3. MINIMUM LIQUIDITY. The Borrower will not permit the ratio of
(a) the sum of (i) cash of the Borrower plus (ii) Current Accounts Receivable of
the Borrower to (b) the sum of (i) accounts payable of the Borrower plus (ii)
Senior Funded Indebtedness to be less than 1.25 to 1.00 at any time.

           10.4. CONSOLIDATED NET WORTH. The Borrower will not permit
Consolidated Net Worth at any time to be less than the greater of (a)
$375,000,000 or (b) the sum of (i) $375,000,000 plus (ii) on a cumulative basis,
75% of positive Consolidated Net Income for each fiscal quarter beginning with
the fiscal quarter ended March 31, 1996, minus (iii) 100% of the purchase price
paid by the Borrower to repurchase the capital stock of the Borrower in such
fiscal quarter.

                             11. CLOSING CONDITIONS.

           The obligations of the Banks to make the initial Revolving Credit
Loans and of the Agent to issue any initial Letters of Credit shall be subject
to the satisfaction of the following conditions precedent.

           11.1. LOAN DOCUMENTS. Each of the Loan Documents shall have been duly
executed and delivered by the respective parties thereto, shall be in full force
and effect and shall be in form and substance satisfactory to each of the Banks.
Each Bank shall have received a fully executed copy of each such document.

           11.2. CERTIFIED COPIES OF CHARTER DOCUMENTS. Each of the Banks shall
have received from the Borrower and each of its Subsidiaries a copy, certified
by a duly authorized officer of such Person to be true and complete on the
Closing Date, of each of (a) its charter or other incorporation documents as in
effect on such date of certification, and (b) its by-laws as in effect on such
date.

           11.3. CORPORATE, ACTION. All corporate action necessary for the valid
execution, delivery and performance by the Borrower and each of its Subsidiaries
of this Credit Agreement and the other Loan Documents to which it is or is to
become a party shall have been duly and effectively taken, and evidence thereof
satisfactory to the Banks shall have been provided to each of the Banks.

<PAGE>   59
                                      -52-

           11.4. INCUMBENCY CERTIFICATE. Each of the Banks shall have received
from the Borrower and each of its Subsidiaries an incumbency certificate, dated
as of the Closing Date, signed by a duly authorized officer of the Borrower or
such Subsidiary, and giving the name and bearing a specimen signature of each
individual who shall be authorized: (a) to sign, in the name and on behalf of
each of the Borrower of such Subsidiary, each of the Loan Documents and
Subordination Documents to which the Borrower or such Subsidiary is or is to
become a party; (b) in the case of the Borrower, to make Loan Requests and
Conversion Requests and to apply for Letters of Credit; and (c) to give notices
and to take other action on its behalf under the Loan Documents.

           11.5. CERTIFICATES OF INSURANCE. The Agent shall have received (a) a
certificate of insurance from an independent insurance broker dated as of the
Closing Date, identifying insurers, types of insurance, insurance limits, and
policy terms and (b) certified copies of all policies evidencing such insurance
(or certificates therefore signed by the insurer or an agent authorized to bind
the insurer).

           11.6. SOLVENCY CERTIFICATE. Each of the Banks shall have received an
officer's certificate of the Borrower dated as of the Closing Date as to the
solvency of the Borrower and its Subsidiaries following the consummation of the
transactions contemplated herein and in form and substance satisfactory to the
Banks.

           11.7. OPINION OF COUNSEL. Each of the Banks and the Agent shall have
received a favorable legal opinion addressed to the Banks and the Agent, dated
as of the Closing Date, in form and substance satisfactory to the Banks and the
Agent, from Michael A. Cornelius, Esq., counsel to the Borrower and its Domestic
Subsidiaries.

           11.8. PAYMENT OF FEES. The Borrower shall have paid to the Banks or
the Agent, as appropriate, the closing fee and the administrative fee as set
forth in the Fee Letter.

           11.9. TERMINATION OF RECEIVABLES FINANCING. The Agent shall have
received evidence satisfactory to the Agent that all Indebtedness of the
Borrower to J.P. Morgan Delaware, as Administrative Agent pursuant to
Receivables Purchase Agreement dated as of December __, 1993 has been repaid and
such agreement, and all the Borrower's obligations thereunder, has been
terminated.

                        12. CONDITIONS TO ALL BORROWINGS.

           The obligations of the Banks to make, convert or continue any
Revolving Credit Loan, including making the initial Revolving Credit Loan, and
of the Agent to issue, extend or renew any Letter of Credit, in each case
whether on or after the Closing Date, shall also be subject to the satisfaction
of the following conditions precedent:

<PAGE>   60
                                      -53-

           12.1. REPRESENTATIONS TRUE; NO EVENT OF DEFAULT. Each of the
representations and warranties of any of the Borrower and its Subsidiaries
contained in this Credit Agreement, the other Loan Documents or in any document
or instrument delivered pursuant to or in connection with this Credit Agreement
shall be true as of the date as of which they were made and shall also be true
at and as of the time of the making of such Revolving Credit Loan or the
issuance, extension or renewal of such Letter of Credit, with the same effect as
if made at and as of that time (except to the extent of changes resulting from
transactions contemplated or permitted by this Credit Agreement and the other
Loan Documents and changes occurring in the ordinary course of business that
singly or in the aggregate are not materially adverse, and to the extent that
such representations and warranties relate expressly to an earlier date) and no
Default or Event of Default shall have occurred and be continuing.

           12.2. NO LEGAL IMPEDIMENT. No change shall have occurred in any law
or regulations thereunder or interpretations thereof that in the reasonable
opinion of any Bank would make it illegal for such Bank to make such Revolving
Credit Loan or to participate in the issuance, extension or renewal of such
Letter of Credit or in the reasonable opinion of the Agent would make it illegal
for the Agent to issue, extend or renew such Letter of Credit.

           12.3. GOVERNMENTAL REGULATION. Each Bank shall have received such
statements in substance and form reasonably satisfactory to such Bank as such
Bank shall require for the purpose of compliance with any applicable regulations
of the Comptroller of the Currency or the Board of Governors of the Federal
Reserve System.

           12.4. PROCEEDINGS AND DOCUMENTS. All proceedings in connection with
the transactions contemplated by this Credit Agreement, the other Loan Documents
and all other documents incident thereto shall be satisfactory in substance and
in form to the Banks and to the Agent and the Bank Agent's Special Counsel, and
the Banks, the Agent and such counsel shall have received all information and
such counterpart originals or certified or other copies of such documents as the
Agent may reasonably request.

                    13. EVENTS OF DEFAULT; ACCELERATION; ETC.

           13.1. EVENTS OF DEFAULT AND ACCELERATION. If any of the following
events ("Events of Default" or, if the giving of notice or the lapse of time or
both is required, then, prior to such notice or lapse of time, "Defaults") shall
occur:

                     (a) the Borrower shall fail to pay any principal of the
           Revolving Credit Loans or any Reimbursement Obligation when the same
           shall become due and payable, whether at the stated date of maturity
           or any accelerated date of maturity or at any other date fixed for
           payment;

                     (b) the Borrower or any of its Domestic Subsidiaries shall
           fail to pay any interest on the Revolving Credit Loans, the
           Commitment Fee,

<PAGE>   61
                                      -54-

           any Letter of Credit Fee, the administrative fee, or other sums due
           hereunder or under any of the other Loan Documents, when the same
           shall become due and payable, whether at the stated date of maturity
           or any accelerated date of maturity or at any other date fixed for
           payment;

                     (c) the Borrower shall fail to comply with any of its
           covenants contained in Section 8, 9 or 10;

                     (d) the Borrower or any of its Subsidiaries shall fail to
           perform any term, covenant or agreement contained herein or in any of
           the other Loan Documents (other than those specified elsewhere in
           this Section 13.1) for fifteen (15) days after written notice of such
           failure has been given to the Borrower by the Agent;

                     (e) any representation or warranty of the Borrower or any
           of its Subsidiaries in this Credit Agreement or any of the other Loan
           Documents or in any other document or instrument delivered pursuant
           to or in connection with this Credit Agreement shall prove to have
           been false in any material respect upon the date when made or deemed
           to have been made or repeated;

                     (f) the Borrower or any of its Subsidiaries shall fail to
           pay at maturity, or within any applicable period of grace, any
           obligation for borrowed money or credit received or in respect of any
           Capitalized Leases, or fail to observe or perform any material term,
           covenant or agreement contained in any agreement by which it is
           bound, evidencing or securing borrowed money or credit received or in
           respect of any Capitalized Leases for such period of time as would
           permit (assuming the giving of appropriate notice if required) the
           holder or holders thereof or of any obligations issued thereunder to
           accelerate the maturity thereof;

                     (g) the Borrower or any of its Subsidiaries shall make an
           assignment for the benefit of creditors, or admit in writing its
           inability to pay or generally fail to pay its debts as they mature or
           become due, or shall petition or apply for the appointment of a
           trustee or other custodian, liquidator or receiver of the Borrower or
           any of its Subsidiaries or of any substantial part of the assets of
           the Borrower or any of its Subsidiaries or shall commence any case or
           other proceeding relating to the Borrower or any of its Subsidiaries
           under any bankruptcy, reorganization, arrangement, insolvency,
           readjustment of debt, dissolution or liquidation or similar law of
           any jurisdiction, now or hereafter in effect, or shall take any
           action to authorize or in furtherance of any of the foregoing, or if
           any such petition or application shall be filed or any such case or
           other proceeding shall be commenced against the Borrower or any of
           its Subsidiaries and the Borrower or any of its Subsidiaries shall
           indicate its approval thereof, consent thereto or acquiescence
           therein or such petition or application shall not have been dismissed
           within forty-five (45) days following the filing thereof;

<PAGE>   62
                                      -55-

                     (h) a decree or order is entered appointing any such
           trustee, custodian, liquidator or receiver or adjudicating the
           Borrower or any of its Subsidiaries bankrupt or insolvent, or
           approving a petition in any such case or other proceeding, or a
           decree or order for relief is entered in respect of the Borrower or
           any Subsidiary of the Borrower in an involuntary case under federal
           bankruptcy laws as now or hereafter constituted;

                     (i) there shall remain in force, undischarged, unsatisfied
           and unstayed, for more than thirty days, whether or not consecutive,
           any final judgment against the Borrower or any of its Subsidiaries
           that, with other outstanding final judgments, undischarged, against
           the Borrower or any of its Subsidiaries exceeds in the aggregate
           $10,000,000;

                     (j) if any of the Loan Documents shall be cancelled,
           terminated, revoked or rescinded otherwise than in accordance with
           the terms thereof or with the express prior written agreement,
           consent or approval of the Banks, or any action at law, suit or in
           equity or other legal proceeding to cancel, revoke or rescind any of
           the Loan Documents shall be commenced by or on behalf of the Borrower
           or any of its Subsidiaries party thereto or any of their respective
           stockholders, or any court or any other governmental or regulatory
           authority or agency of competent jurisdiction shall make a
           determination that, or issue a judgment, order, decree or ruling to
           the effect that, any one or more of the Loan Documents is illegal,
           invalid or unenforceable in accordance with the terms thereof;

                     (k) with respect to any Guaranteed Pension Plan, an ERISA
           Reportable Event shall have occurred and the Majority Banks shall
           have determined in their reasonable discretion that such event
           reasonably could be expected to result in liability of the Borrower
           or any of its Subsidiaries to the PBGC or such Guaranteed Pension
           Plan in an aggregate amount exceeding $2,000,000 and such event in
           the circumstances occurring reasonably could constitute grounds for
           the termination of such Guaranteed Pension Plan by the PBGC or for
           the appointment by the appropriate United States District Court of a
           trustee to administer such Guaranteed Pension Plan; or a trustee
           shall have been appointed by the United States District Court to
           administer such Plan; or the PBGC shall have instituted proceedings
           to terminate such Guaranteed Pension Plan;

                     (l) the Borrower or any of its Subsidiaries shall be
           enjoined, restrained or in any way prevented by the order of any
           court or any administrative or regulatory agency from conducting any
           material part of its business and such order shall continue in effect
           for more than thirty (30) days;

<PAGE>   63
                                      -56-

                     (m) there shall occur any material damage to, or loss,
           theft or destruction of, any assets of the Borrower or any of its
           Subsidiaries, whether or not insured, or any strike, lockout, labor
           dispute, embargo, condemnation, act of God or public enemy, or other
           casualty, which in any such case causes, for more than fifteen (15)
           consecutive days, the cessation or substantial curtailment of revenue
           producing activities at any facility of the Borrower or any of its
           Subsidiaries if such event or circumstance is not covered by business
           interruption insurance and would have a material adverse effect on
           the business or financial condition of the Borrower or such
           Subsidiary;

                     (n) there shall occur the loss, suspension or revocation
           of, or failure to renew, any license or permit now held or hereafter
           acquired by the Borrower or any of its Subsidiaries if such loss,
           suspension, revocation or failure to renew would have a material
           adverse effect on the business or financial condition of the Borrower
           or such Subsidiary;

                     (o) the Borrower or any of its Subsidiaries shall be
           indicted for a state or federal crime, or any civil or criminal
           action shall otherwise have been brought or threatened against the
           Borrower or any of its Subsidiaries, a punishment for which in any
           such case could include the forfeiture of any assets of the Borrower
           or such Subsidiary;

                     (p) the Borrower shall at any time fail legally or
           beneficially own less than 100% of the capital stock of any of the
           Guarantors; or

                     (q) any Person shall at any time be the legal or beneficial
           owner (within the meaning used in Rule 13d-3 of the Securities and
           Exchange Commission promulgated under the Securities Exchange Act of
           1934, as amended) of more than fifty percent (50%) of the outstanding
           shares of the common stock of the Borrower;

then, and in any such event, so long as the same may be continuing, the Agent
may, and upon the request of the Majority Banks shall, by notice in writing to
the Borrower declare all amounts owing with respect to this Credit Agreement,
the Revolving Credit Notes and the other Loan Documents and all Reimbursement
Obligations to be, and they shall thereupon forthwith become, immediately due
and payable without presentment, demand, protest or other notice of any kind,
all of which are hereby expressly waived by the Borrower; provided that in the
event of any Event of Default specified in Section Section 13.1(g) or 13.1(h),
all such amounts shall become immediately due and payable automatically and
without any requirement of notice from the Agent or any Bank.

<PAGE>   64
                                      -57-

           13.2. TERMINATION OF COMMITMENTS. If any one or more of the Events of
Default specified in Section 13.1(g) or Section 13.1(h) shall occur, any unused
portion of the credit hereunder shall forthwith terminate and each of the Banks
shall be relieved of all further obligations to make Revolving Credit Loans to
the Borrower and the Agent shall be relieved of all further obligations to
issue, extend or renew Letters of Credit. If any other Event of Default shall
have occurred and be continuing, or if on any Drawdown Date or other date for
issuing, extending or renewing any Letter of Credit the conditions precedent to
the making of the Revolving Credit Loans to be made on such Drawdown Date or (as
the case may be) to issuing, extending or renewing such Letter of Credit on such
other date are not satisfied, the Agent may and, upon the request of the
Majority Banks, shall, by notice to the Borrower, terminate the unused portion
of the credit hereunder, and upon such notice being given such unused portion of
the credit hereunder shall terminate immediately and each of the Banks shall be
relieved of all further obligations to make Revolving Credit Loans and the Agent
shall be relieved of all further obligations to issue, extend or renew Letters
of Credit. No termination of the credit hereunder shall relieve the Borrower or
any of its Domestic Subsidiaries of any of the Obligations.

           13.3. REMEDIES. In case any one or more of the Events of Default
shall have occurred and be continuing, and whether or not the Banks shall have
accelerated the maturity of the Revolving Credit Loans pursuant to Section 13.1,
each Bank, if owed any amount with respect to the Revolving Credit Loans or the
Reimbursement Obligations, may, with the consent of the Majority Banks but not
otherwise, proceed to protect and enforce its rights by suit in equity, action
at law or other appropriate proceeding, whether for the specific performance of
any covenant or agreement contained in this Credit Agreement and the other Loan
Documents or any instrument pursuant to which the Obligations to such Bank are
evidenced, including as permitted by applicable law the obtaining of the ex
parte appointment of a receiver, and, if such amount shall have become due, by
declaration or otherwise, proceed to enforce the payment thereof or any other
legal or equitable right of such Bank. No remedy herein conferred upon any Bank
or the Agent or the holder of any Revolving Credit Note or purchaser of any
Letter of Credit Participation is intended to be exclusive of any other remedy
and each and every remedy shall be cumulative and shall be in addition to every
other remedy given hereunder or now or hereafter existing at law or in equity or
by statute or any other provision of law.

                                   14. SETOFF.

           Regardless of the adequacy of any collateral, during the continuance
of any Event of Default, any deposits or other sums credited by or due from any
of the Banks to the Borrower and any securities or other property of the
Borrower in the possession of such Bank may be applied to or set off by such
Bank against the payment of Obligations and any and all other liabilities,
direct, or indirect, absolute or contingent, due or to become due, now existing
or hereafter arising, of the Borrower to such Bank. Each of the Banks agrees
with each other Bank that (a) if an amount to be set off is to be applied to
Indebtedness of the

<PAGE>   65
                                      -58-

Borrower to such Bank, other than Indebtedness evidenced by the Revolving Credit
Notes held by such Bank or constituting Reimbursement Obligations owed to such
Bank, such amount shall be applied ratably to such other Indebtedness and to the
Indebtedness evidenced by all such Revolving Credit Notes held by such Bank or
constituting Reimbursement Obligations owed to such Bank, and (b) if such Bank
shall receive from the Borrower, whether by voluntary payment, exercise of the
right of setoff, counterclaim, cross action, enforcement of the claim evidenced
by the Revolving Credit Notes held by, or constituting Reimbursement Obligations
owed to, such Bank by proceedings against the Borrower at law or in equity or by
proof thereof in bankruptcy, reorganization, liquidation, receivership or
similar proceedings, or otherwise, and shall retain and apply to the payment of
the Revolving Credit Note or Revolving Credit Notes held by, or Reimbursement
Obligations owed to, such Bank any amount in excess of its ratable portion of
the payments received by all of the Banks with respect to the Revolving Credit
Notes held by, and Reimbursement Obligations owed to, all of the Banks, such
Bank will make such disposition and arrangements with the other Banks with
respect to such excess, either by way of distribution, pro tanto assignment of
claims, subrogation or otherwise as shall result in each Bank receiving in
respect of the Revolving Credit Notes held by it or Reimbursement obligations
owed it, its proportionate payment as contemplated by this Credit Agreement;
provided that if all or any part of such excess payment is thereafter recovered
from such Bank, such disposition and arrangements shall be rescinded and the
amount restored to the extent of such recovery, but without interest.

                              15. THE BANK AGENTS.

           15.1.  AUTHORIZATION.

                     (a) Each of the Bank Agents is authorized to take such
           action on behalf of each of the Banks and to exercise all such powers
           as are hereunder and under any of the other Loan Documents and any
           related documents delegated to such Bank Agent, together with such
           powers as are reasonably incident thereto, provided that no duties or
           responsibilities not expressly assumed herein or therein shall be
           implied to have been assumed by such Bank Agent.

                     (b) The relationship between each of the Bank Agents and
           each of the Banks is that of an independent contractor. The use of
           the terms "Syndication Agent", "Bank Agents" and "Agent" is for
           convenience only and is used to describe, as a form of convention,
           the independent contractual relationship between each of the Bank
           Agents and each of the Banks. Nothing contained in this Credit
           Agreement nor the other Loan Documents shall be construed to create
           an agency, trust or other fiduciary relationship between any of the
           Bank Agents and any of the Banks.

<PAGE>   66
                                      -59-

                     (c) As an independent contractor empowered by the Banks to
           exercise certain rights and perform certain duties and
           responsibilities hereunder and under the other Loan Documents, each
           of the Bank Agents is nevertheless a "representative" of the Banks,
           as that term is defined in Article 1 of the Uniform Commercial Code,
           for purposes of actions for the benefit of the Banks and each of the
           Bank Agents with respect to all collateral security and guaranties
           contemplated by the Loan Documents. Such actions include the
           designation of either of the Bank Agents as "secured party",
           "mortgagee" or the like on all financing statements and other
           documents and instruments, whether recorded or otherwise, relating to
           the attachment, perfection, priority or enforcement of any security
           interests, mortgages or deeds of trust in collateral security
           intended to secure the payment or performance of any of the
           Obligations, all for the benefit of the Banks and the Bank Agents.

           15.2. EMPLOYEES AND AGENTS. Each of the Bank Agents may exercise its
powers and execute its duties by or through employees or agents and shall be
entitled to take, and to rely on, advice of counsel concerning all matters
pertaining to its rights and duties under this Credit Agreement and the other
Loan Documents. Each of the Bank Agents may utilize the services of such Persons
as such Bank Agent in its sole discretion may reasonably determine, and all
reasonable fees and expenses of any such Persons shall be paid by the Borrower.

           15.3. NO LIABILITY. Neither the Syndication Agent, the Agent nor any
of their respective shareholders, directors, officers or employees nor any other
Person assisting them in their duties nor any agent or employee thereof, shall
be liable for any waiver, consent or approval given or any action taken, or
omitted to be taken, in good faith by it or them hereunder or under any of the
other Loan Documents, or in connection herewith or therewith, or be responsible
for the consequences of any oversight or error of judgment whatsoever, except
that such Bank Agent or such other Person, as the case may be, may be liable for
losses due to its willful misconduct or gross negligence.

           15.4. NO REPRESENTATIONS. Neither of the Bank Agents shall be
responsible for the execution or validity or enforceability of this Credit
Agreement, the Revolving Credit Notes, the Letters of Credit, any of the other
Loan Documents, or for any recitals or statements, warranties or representations
made herein or in any of the other Loan Documents or in any certificate or
instrument hereafter furnished to it by or on behalf of the Borrower or any of
its Subsidiaries, or be bound to ascertain or inquire as to the performance or
observance of any of the terms, conditions, covenants or agreements herein or to
inspect any of the properties, books or records of the Borrower or any of its
Subsidiaries. Neither of the Bank Agents shall be bound to ascertain whether any
notice, consent, waiver or request delivered to it by the Borrower or any holder
of any of the Revolving Credit Notes shall have been duly authorized or is true,
accurate and complete. Neither of the Bank Agents has made nor does it now make
any representations or warranties, express or

<PAGE>   67
                                      -60-

implied, nor does it assume any liability to the Banks, with respect to the
credit worthiness or financial conditions of the Borrower or any of its
Subsidiaries. Each Bank acknowledges that it has, independently and without
reliance upon either of the Bank Agents or any other Bank, and based upon such
information and documents as it has deemed appropriate, made its own credit
analysis and decision to enter into this Credit Agreement.

           15.5.  PAYMENTS.

                     15.5.1. PAYMENTS TO AGENT. A payment by the Borrower to the
           Agent hereunder or any of the other Loan Documents for the account of
           any Bank shall constitute a payment to such Bank. The Agent agrees
           promptly to distribute to each Bank such Bank's pro rata share of
           payments received by the Agent for the account of the Banks except as
           otherwise expressly provided herein or in any of the other Loan
           Documents.

                     15.5.2. DISTRIBUTION BY AGENT. If in the opinion of the
           Agent the distribution of any amount received by it in such capacity
           hereunder, under the Revolving Credit Notes or under any of the other
           Loan Documents might involve it in liability, it may refrain from
           making distribution until its right to make distribution shall have
           been adjudicated by a court of competent jurisdiction. If a court of
           competent jurisdiction shall adjudge that any amount received and
           distributed by the Agent is to be repaid, each Person to whom any
           such distribution shall have been made shall either repay to the
           Agent its proportionate share of the amount so adjudged to be repaid
           or shall pay over the same in such manner and to such Persons as
           shall be determined by such court.

                     15.5.3. DELINQUENT BANKS. Notwithstanding anything to the
           contrary contained in this Credit Agreement or any of the other Loan
           Documents, any Bank that fails (a) to make available to the Agent its
           pro rata share of any Revolving Credit Loan or to purchase any Letter
           of Credit Participation or (b) to comply with the provisions of
           Section 14 with respect to making dispositions and arrangements with
           the other Banks, where such Bank's share of any payment received,
           whether by setoff or otherwise, is in excess of its pro rata share of
           such payments due and payable to all of the Banks, in each case as,
           when and to the full extent required by the provisions of this Credit
           Agreement, shall be deemed delinquent (a "Delinquent Bank") and shall
           be deemed a Delinquent Bank until such time as such delinquency is
           satisfied. A Delinquent Bank shall be deemed to have assigned any and
           all payments due to it from the Borrower, whether on account of
           outstanding Revolving Credit Loans, Unpaid Reimbursement Obligations,
           interest, fees or otherwise, to the remaining nondelinquent Banks for
           application to, and reduction of, their respective pro rata shares of
           all outstanding Revolving Credit Loans and Unpaid Reimbursement
           Obligations. The Delinquent Bank hereby authorizes the Agent to
           distribute such payments to the nondelinquent

<PAGE>   68
                                      -61-

           Banks in proportion to their respective pro rata shares of all
           outstanding Revolving Credit Loans and Unpaid Reimbursement
           Obligations. A Delinquent Bank shall be deemed to have satisfied in
           full a delinquency when and if, as a result of application of the
           assigned payments to all outstanding Revolving Credit Loans and
           Unpaid Reimbursement Obligations of the nondelinquent Banks, the
           Banks' respective pro rata shares of all outstanding Revolving Credit
           Loans and Unpaid Reimbursement Obligations have returned to those in
           effect immediately prior to such delinquency and without giving
           effect to the nonpayment causing such delinquency.

           15.6. HOLDERS OF NOTES. The Agent may deem and treat the payee of any
Revolving Credit Note or the purchaser of any Letter of Credit Participation as
the absolute owner or purchaser thereof for all purposes hereof until it shall
have been furnished in writing with a different name by such payee or by a
subsequent holder, assignee or transferee.

           15.7. INDEMNITY. The Banks ratably agree hereby to indemnify and hold
harmless each of the Bank Agents from and against any and all claims, actions
and suits (whether groundless or otherwise), losses, damages, costs, expenses
(including any expenses for either of the Bank Agents has not been reimbursed by
the Borrower as required by Section 16), and liabilities of every nature and
character arising out of or related to this Credit Agreement, the Revolving
Credit Notes, or any of the other Loan Documents or the transactions
contemplated or evidenced hereby or thereby, or either of the Bank Agents'
actions taken hereunder or thereunder, except to the extent that any of the same
shall be directly caused by such Bank Agent's willful misconduct or gross
negligence.

           15.8. BANK AGENTS AS BANK. In its individual capacity, NationsBank
and FNBB, as the case may be, shall have the same obligations and the same
rights, powers and privileges in respect to its Commitment and the Revolving
Credit Loans made by it, and as the holder of any of the Revolving Credit Notes
and as the purchaser of any Letter of Credit Participations, as it would have
were it not also a Bank Agent.

           15.9. RESIGNATION. Either or both of the Bank Agents may resign at
any time by giving sixty (60) days prior written notice thereof to the Banks,
the Borrower and the other Bank Agent. Upon any such resignation, the Majority
Banks shall have the right to appoint a successor Syndication Agent or Agent, as
the case may be. Unless a Default or Event of Default shall have occurred and be
continuing, such successor Bank Agent shall be reasonably acceptable to the
Borrower. If no successor Bank Agent shall have been so appointed by the
Majority Banks and shall have accepted such appointment within thirty (30) days
after the retiring Bank Agent's giving of notice of resignation, then the
retiring Bank Agent may, on behalf of the Banks, appoint a successor Bank Agent,
which shall be a financial institution having a rating of not less than A or its
equivalent by Standard & Poor's Corporation. Upon the acceptance of any

<PAGE>   69
                                      -62-

appointment as a Bank Agent hereunder by a successor Bank Agent, such successor
Bank Agent shall thereupon succeed to and become vested with all the rights,
powers, privileges and duties of the retiring Bank Agent, and the retiring Bank
Agent shall be discharged from its duties and obligations hereunder. After any
retiring Bank Agent's resignation, the provisions of this Credit Agreement and
the other Loan Documents shall continue in effect for its benefit in respect of
any actions taken or omitted to be taken by it while it was acting as Bank
Agent.

           15.10. NOTIFICATION OF DEFAULTS AND EVENTS OF DEFAULT. Each Bank
hereby agrees that, upon learning of the existence of a Default or an Event of
Default, it shall promptly notify the Agent thereof. The Agent hereby agrees
that upon receipt of any notice under this Section 15.10 it shall promptly
notify the other Banks of the existence of such Default or Event of Default.

                                  16. EXPENSES.

           The Borrower agrees to pay (a) the reasonable costs of producing and
reproducing this Credit Agreement, the other Loan Documents and the other
agreements and instruments mentioned herein, (b) any taxes (including any
interest and penalties in respect thereto) payable by either of the Bank Agents
or any of the Banks (other than taxes based upon such Bank Agent's or any Bank's
net income) on or with respect to the transactions contemplated by this Credit
Agreement (the Borrower hereby agreeing to indemnify each Bank Agent and each
Bank with respect thereto), (c) the reasonable fees, expenses and disbursements
of the Bank Agents' Special Counsel or any local counsel to the Bank Agents
incurred in connection with the preparation, administration or interpretation of
the Loan Documents and other instruments mentioned herein, each closing
hereunder, and amendments, modifications, approvals, consents or waivers hereto
or hereunder, (d) the fees, expenses and disbursements of the Bank Agents
incurred by the Bank Agents in connection with the preparation, administration
or interpretation of the Loan Documents and other instruments mentioned herein,
and (e) all reasonable out-of-pocket expenses (including without limitation
reasonable attorneys' fees and costs, which attorneys may be employees of any
Bank or either of the Bank Agents, and reasonable consulting, accounting,
appraisal, investment banking and similar professional fees and charges)
incurred by any Bank or either of the Bank Agents in connection with (i) the
enforcement of or preservation of rights under any of the Loan Documents against
the Borrower or any of its Subsidiaries or the administration thereof after the
occurrence of a Default or Event of Default and (ii) any litigation, proceeding
or dispute whether arising hereunder or otherwise, in any way related to any
Bank's or either of the Bank Agents' relationship with the Borrower or any of
its Subsidiaries. The covenants of this Section 16 shall survive payment or
satisfaction of all other Obligations.

<PAGE>   70
                                      -63-

                              17. INDEMNIFICATION.

           The Borrower agrees to indemnify and hold harmless each of the Bank
Agents and the Banks from and against any and all claims, actions and suits
whether groundless or otherwise, and from and against any and all liabilities,
losses, damages and expenses of every nature and character arising out of this
Credit Agreement or any of the other Loan Documents or the transactions
contemplated hereby including, without limitation, (a) any actual or proposed
use by the Borrower or any of its Subsidiaries of the proceeds of any of the
Revolving Credit Loans or Letters of Credit, (b) the Borrower or any of its
Subsidiaries entering into or performing this Credit Agreement or any of the
other Loan Documents or (c) with respect to the Borrower and its Subsidiaries
and their respective properties and assets, the violation of any Environmental
Law, the presence, disposal, escape, seepage, leakage, spillage, discharge,
emission, release or threatened release of any Hazardous Substances or any
action, suit, proceeding or investigation brought or threatened with respect to
any Hazardous Substances (including, but not limited to, claims with respect to
wrongful death, personal injury or damage to property), in each case including,
without limitation, the reasonable fees and disbursements of counsel and
allocated costs of internal counsel incurred in connection with any such
investigation, litigation or other proceeding. In litigation, or the preparation
therefor, the Banks and the Bank Agents shall be entitled to select their own
counsel and, in addition to the foregoing indemnity, the Borrower agrees to pay
promptly the reasonable fees and expenses of such counsel. If, and to the extent
that the obligations of the Borrower under this Section 17 are unenforceable for
any reason, the Borrower hereby agrees to make the maximum contribution to the
payment in satisfaction of such obligations which is permissible under
applicable law. The covenants contained in this Section 17 shall survive payment
or satisfaction in full of all other Obligations.

                         18. SURVIVAL OF COVENANTS, ETC.

           All covenants, agreements, representations and warranties made
herein, in the Revolving Credit Notes, in any of the other Loan Documents or in
any documents or other papers delivered by or on behalf of the Borrower or any
of its Subsidiaries pursuant hereto shall be deemed to have been relied upon by
the Banks and the Bank Agent, notwithstanding any investigation heretofore or
hereafter made by any of them, and shall survive the making by the Banks of any
of the Revolving Credit Loans and the issuance, extension or renewal of any
Letters of Credit, as herein contemplated, and shall continue in full force and
effect so long as any Letter of Credit or any amount due under this Credit
Agreement or the Revolving Credit Notes or any of the other Loan Documents
remains outstanding or any Bank has any obligation to make any Revolving Credit
Loans or the Agent has any obligation to issue, extend or renew any Letter of
Credit, and for such further time as may be otherwise expressly

<PAGE>   71
                                      -64-

specified in this Credit Agreement. All statements contained in any certificate
or other paper delivered to any Bank or the Agent at any time by or on behalf of
the Borrower or any of its Subsidiaries pursuant hereto or in connection with
the transactions contemplated hereby shall constitute representations and
warranties by the Borrower or such Subsidiary hereunder.

                  19. ASSIGNMENT AND PARTICIPATION; ACCESSION.

           19.1.  CONDITIONS TO ASSIGNMENT AND ACCESSION.

                     19.1.1. ASSIGNMENT BY BANKS. Except as provided herein,
           each Bank may assign to one or more Eligible Assignees all or a
           portion of its interests, rights and obligations under this Credit
           Agreement (including all or a portion of its Commitment Percentage
           and Commitment and the same portion of the Revolving Credit Loans at
           the time owing to it, the Revolving Credit Notes held by it and its
           participating interest in the risk relating to any Letters of
           Credit); provided that (a) each of the Agent and, unless a Default or
           Event of Default shall have occurred and be continuing, the Borrower
           shall have given its prior written consent to such assignment, which
           consent, in the case of each of the Agent and the Borrower, will not
           be unreasonably withheld; provided, however, for an assignment by a
           Bank to its affiliate the consent of the Agent and the Borrower shall
           not be required; (b) each such assignment shall be of a constant, and
           not a varying, percentage of all the assigning Bank's rights and
           obligations under this Credit Agreement, and each assignment shall be
           in an amount that is a whole multiple of $5,000,000, (d) the parties
           to such assignment shall execute and deliver to the Agent, for
           recording in the Register (as hereinafter defined), an Assignment and
           Acceptance, substantially in the form of Exhibit D hereto (an
           "Assignment and Acceptance"), together with any Revolving Credit
           Notes subject to such assignment. Upon such execution, delivery,
           acceptance and recording, from and after the effective date specified
           in each Assignment and Acceptance, which effective date shall be at
           least five (5) Business Days after the execution thereof, (i) the
           assignee thereunder shall be a party hereto and, to the extent
           provided in such Assignment and Acceptance, have the rights and
           obligations of a Bank hereunder, and (ii) the assigning Bank shall,
           to the extent provided in such assignment and upon payment to the
           Agent of the registration fee referred to in Section 19.3, be
           released from its obligations under this Credit Agreement.

                     19.1.2. ACCESSION. Except as otherwise provided herein,
           Eligible Assignees (each such Eligible Assignee, an "Acceding Bank")
           may, at the request of the Borrower and with the consent of the Bank
           Agents, become party to this Credit Agreement by entering into an
           Instrument of Accession in substantially the form of Exhibit E hereto
           (an "Instrument of Accession") with the Borrower and the Bank Agents
           and assuming thereunder a Commitment, in an amount to be agreed upon
           by the Borrower, such Acceding Bank and the Bank Agents, to make
           Revolving

<PAGE>   72
                                      -65-

           Credit Loans and participate in the risk relating to the Letters of
           Credit pursuant to the terms hereof, and the Total Commitment shall
           thereupon be increased by the amount of such Acceding Bank's
           Commitment; provided, however, that (a) each of the Bank Agents shall
           have given its prior written consent to such accession, and (b) in no
           event shall the Total Commitment be increased under any one or more
           of such Instruments of Accession so as to exceed, in the aggregate,
           $150,000,000. On the effective date specified in any Instrument of
           Accession, Schedule 1 hereto shall be deemed to be amended to reflect
           (a) the name, address, Commitment and Commitment Percentage of such
           Acceding Bank, (b) the Total Commitment as increased by such Acceding
           Bank's Commitment, and (c) the changes to the other Banks' respective
           Commitment Percentages and any changes to the other Banks' respective
           Commitments (in the event such Bank is also the Acceding Bank)
           resulting from such assumption and such increased Total Commitment.

           19.2. CERTAIN REPRESENTATIONS AND WARRANTIES; LIMITATIONS; COVENANTS.
By executing and delivering an Assignment and Acceptance or Instrument of
Accession, as the case may be, the parties to the assignment and Instrument of
Accession, as the case may be, thereunder confirm to and agree with each other
and the other parties hereto as follows:

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

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

<PAGE>   73
                                      -66-

                     (c) such assignee or Acceding Bank, as the case may be,
           confirms that it has received a copy of this Credit Agreement,
           together with copies of the most recent financial statements referred
           to in Section 7.4 and Section 8.4 and such other documents and
           information as it has deemed appropriate to make its own credit
           analysis and decision to enter into such Assignment and Acceptance or
           Instrument of Accession, as the case may be;

                     (d) such assignee or Acceding Bank, as the case may be,
           will, independently and without reliance upon the assigning Bank,
           either of the Bank Agents or any other Bank and based on such
           documents and information as it shall deem appropriate at the time,
           continue to make its own credit decisions in taking or not taking
           action under this Credit Agreement;

                     (e) such assignee or Acceding Bank, as the case may be,
           represents and warrants that it is an Eligible Assignee;

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

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

                     (h) such assignee or Acceding Bank, as the case may be,
           represents and warrants that it is legally authorized to enter into
           such Assignment and Acceptance or Instrument of Accession, as the
           case may be; and

                     (i) such assignee acknowledges that it has made
           arrangements with the assigning Bank satisfactory to such assignee
           with respect to its pro rata share of Letter of Credit Fees in
           respect of outstanding Letters of Credit.

           19.3. REGISTER. The Agent shall maintain a copy of each Assignment
and Acceptance and Instrument of Accession delivered to it and a register or
similar list (the "Register") for the recordation of the names and addresses of
the Banks and the Commitment Percentage of, and principal amount of the
Revolving Credit Loans owing to and Letter of Credit Participations purchased
by, the Banks from time to time. The entries in the Register shall be
conclusive, in the absence of manifest error, and the Borrower, each of the Bank
Agents and the Banks may treat each Person whose name is recorded in the
Register as a Bank hereunder for all purposes of this Credit Agreement. The
Register shall

<PAGE>   74
                                      -67-

be available for inspection by the Borrower and the Banks at any reasonable time
and from time to time upon reasonable prior notice. Upon each such recordation,
the assigning Bank agrees to pay to the Agent a registration fee in the sum of
$3,500.

           19.4 NEW NOTES. Upon its receipt of an Assignment and Acceptance or
Instrument of Accession, as the case may be, executed by the parties to such
assignment, together with each Revolving Credit Note subject to such assignment,
the Agent shall (a) record the information contained therein in the Register,
and (b) give prompt notice thereof to the Borrower and the Banks (other than the
assigning Bank). Within five (5) Business Days after receipt of such notice, the
Borrower, at its own expense, shall execute and deliver to the Agent, in
exchange for each surrendered Revolving Credit Note, a new Revolving Credit Note
to the order of such Eligible Assignee or Acceding Bank, as the case may be, in
an amount equal to the amount assumed by such Eligible Assignee or Acceding
Bank, as the case may be, pursuant to such Assignment and Acceptance or
Instrument of Accession and, in the event of an assignment, if the assigning
Bank has retained some portion of its obligations hereunder, a new Revolving
Credit Note to the order of the assigning Bank in an amount equal to the amount
retained by it hereunder. Such new Revolving Credit Notes shall provide that
they are replacements for the surrendered Revolving Credit Notes, shall be in an
aggregate principal amount equal to the aggregate principal amount of the
surrendered Revolving Credit Notes, shall be dated the effective date of such in
Assignment and Acceptance and shall otherwise be substantially the form of the
assigned Revolving Credit Notes. Within five (5) days of issuance of any new
Revolving Credit Notes pursuant to this Section 19.4, the Borrower shall deliver
an opinion of counsel, addressed to the Banks and each of the Bank Agents,
relating to the due authorization, execution and delivery of such new Revolving
Credit Notes and the legality, validity and binding effect thereof, in form and
substance satisfactory to the Banks. The surrendered Revolving Credit Notes
shall be cancelled and returned to the Borrower.

           19.5. PARTICIPATIONS. Each Bank may sell participations to one or
more banks or other entities in all or a portion of such Bank's rights and
obligations under this Credit Agreement and the other Loan Documents; provided
that (a) each such participation shall be in an amount of not less than
$2,500,000, (b) any such sale or participation shall not affect the rights and
duties of the selling Bank hereunder to the Borrower and (c) the only rights
granted to the participant pursuant to such participation arrangements with
respect to waivers, amendments or modifications of the Loan Documents shall be
the rights to approve waivers, amendments or modifications that would reduce the
principal of or the interest rate on any Revolving Credit Loans, extend the term
or increase the amount of the Commitment of such Bank as it relates to such
participant, reduce the amount of any Commitment Fees or Letter of Credit Fees
to which such participant is entitled or extend any regularly scheduled payment
date for principal or interest.

<PAGE>   75
                                      -68-


           19.6. DISCLOSURE. The Borrower agrees that in addition to disclosures
made in accordance with standard and customary banking practices any Bank may
disclose information obtained by such Bank pursuant to this Credit Agreement to
assignees or participants and potential assignees or participants hereunder;
provided that such assignees or participants or potential assignees or
participants shall agree (a) to treat in confidence such information unless such
information otherwise becomes public knowledge, (b) not to disclose such
information to a third party, except as required by law or legal process and (c)
not to make use of such information for purposes of transactions unrelated to
such contemplated assignment or participation.

           19.7. ASSIGNEE OR PARTICIPANT AFFILIATED WITH THE BORROWER. If any
assignee Bank or Acceding Bank is an Affiliate of the Borrower, then any such
assignee Bank or Acceding Bank shall have no right to vote as a Bank hereunder
or under any of the other Loan Documents for purposes of granting consents or
waivers or for purposes of agreeing to amendments or other modifications to any
of the Loan Documents or for purposes of making requests to the Agent pursuant
to Section 13.1 or Section 13.2, and the determination of the Majority Banks
shall for all purposes of this Credit Agreement and the other Loan Documents be
made without regard to such assignee Bank's or Acceding Bank's interest in any
of the Revolving Credit Loans. If any Bank sells a participating interest in any
of the Revolving Credit Loans or Reimbursement Obligations to a participant, and
such participant is the Borrower or an Affiliate of the Borrower, then such
transferor Bank shall promptly notify the Agent of the sale of such
participation. A transferor Bank shall have no right to vote as a Bank hereunder
or under any of the other Loan Documents for purposes of granting consents or
waivers or for purposes of agreeing to amendments or modifications to any of the
Loan Documents or for purposes of making requests to the Agent pursuant to
Section 13.1 or Section 13.2 to the extent that such participation is
beneficially owned by the Borrower or any Affiliate of the Borrower, and the
determination of the Majority Banks shall for all purposes of this Credit
Agreement and the other Loan Documents be made without regard to the interest of
such transferor Bank in the Revolving Credit Loans to the extent of such
participation.

           19.8. MISCELLANEOUS ASSIGNMENT PROVISIONS. Any assigning Bank shall
retain its rights to be indemnified pursuant to Section 16 with respect to any
claims or actions arising prior to the date of such assignment. If any assignee
Bank or Acceding Bank is not incorporated under the laws of the United States of
America or any state thereof, it shall, prior to the date on which any interest
or fees are payable hereunder or under any of the other Loan Documents for its
account, deliver to the Borrower and the Agent certification as to its exemption
from deduction or withholding of any United States federal income taxes. If any
Reference Bank transfers all of its interest, rights and obligations under this
Credit Agreement, the Agent shall, in consultation with the Borrower and with
the consent of the Borrower and the Majority Banks, appoint another Bank to

<PAGE>   76
                                      -69-

act as a Reference Bank hereunder. Anything contained in this Section 19 to the
contrary notwithstanding, any Bank may at any time pledge all or any portion of
its interest and rights under this Credit Agreement (including all or any
portion of its Revolving Credit Notes) to any of the twelve Federal Reserve
Banks organized under Section 4 of the Federal Reserve Act, 12 U.S.C. Section
341. No such pledge or the enforcement thereof shall release the pledgor Bank
from its obligations hereunder or under any of the other Loan Documents.

           19.9. ASSIGNMENT BY BORROWER. The Borrower shall not assign or
transfer any of its rights or obligations under any of the Loan Documents
without the prior written consent of each of the Banks.

                                20. NOTICES, ETC.

           Except as otherwise expressly provided in this Credit Agreement, all
notices and other communications made or required to be given pursuant to this
Credit Agreement or the Revolving Credit Notes or any Letter of Credit
Applications shall be in writing and shall be delivered in hand, mailed by
United States registered or certified first class mail, postage prepaid, sent by
overnight courier, or sent by telegraph, telecopy, facsimile or telex and
confirmed by delivery via courier or postal service, addressed as follows:

                     (a) if to the Borrower, at 8105 Irvine Center Drive,
           Irvine, California 92718, Attention: Mr. Duston Williams, or at such
           other address for notice as the Borrower shall last have furnished in
           writing to the Person giving the notice;

                     (b) if to the Agent, at 100 Federal Street, Boston,
           Massachusetts 02110, USA, Attention: High Technology Division, with a
           copy to 435 Tasso Street, Suite 250, Palo Alto, California 94301,
           USA, Attention: Maia D. Heymann, Vice President, or such other
           address for notice as the Agent shall last have furnished in writing
           to the Person giving the notice;

                     (c) if to the Syndication Agent, at 901 Main Street, 67th
           Floor, Dallas, Texas 75283-1000, USA, Attention: William C. Collins,
           Senior Vice President, or such other address for notice as the
           Syndication Agent shall last have furnished in writing to the Person
           giving the notice; and

                     (d) if to any Bank, at such Bank's address set forth on
           Schedule 1 hereto, or such other address for notice as such Bank
           shall have last furnished in writing to the person giving the notice.

           Any such notice or demand shall be deemed to have been duly given or
made and to have become effective (i) if delivered by hand, overnight courier or
facsimile to a responsible officer of the party to which it is directed, at the
time of the receipt thereof by such officer or the sending of such facsimile and
(ii) if sent by registered or certified first-class mail, postage prepaid, on
the third Business Day following the mailing thereof.

<PAGE>   77
                                      -70-


                               21. GOVERNING LAW.

           THIS CREDIT AGREEMENT AND, EXCEPT AS OTHERWISE SPECIFICALLY PROVIDED
THEREIN, EACH OF THE OTHER LOAN DOCUMENTS ARE CONTRACTS UNDER THE LAWS OF THE
STATE OF NEW YORK AND SHALL FOR ALL PURPOSES BE CONSTRUED IN ACCORDANCE WITH AND
GOVERNED BY THE LAWS OF SAID STATE OF NEW YORK (EXCLUDING THE LAWS APPLICABLE TO
CONFLICTS OR CHOICE OF LAW). THE BORROWER AGREES THAT ANY SUIT FOR THE
ENFORCEMENT OF THIS CREDIT AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS MAY BE
BROUGHT IN THE COURTS OF THE STATE OF NEW YORK OR ANY FEDERAL COURT SITTING
THEREIN AND CONSENTS TO THE NONEXCLUSIVE JURISDICTION OF SUCH COURT AND SERVICE
OF PROCESS IN ANY SUCH SUIT BEING MADE UPON THE BORROWER BY MAIL AT THE ADDRESS
SPECIFIED IN SECTION20. THE BORROWER HEREBY WAIVES ANY OBJECTION THAT IT MAY NOW
OR HEREAFTER HAVE TO THE VENUE OF ANY SUCH SUIT OR ANY SUCH COURT OR THAT SUCH
SUIT IS BROUGHT IN AN INCONVENIENT COURT.

                                  22. HEADINGS.

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

                                23. COUNTERPARTS.

           This Credit Agreement and any amendment hereof may be executed in
several counterparts and by each party on a separate counterpart, each of which
when executed and delivered shall be an original, and all of which together
shall constitute one instrument. In proving this Credit Agreement it shall not
be necessary to produce or account for more than one such counterpart signed by
the party against whom enforcement is sought.

                           24. ENTIRE AGREEMENT, ETC.

           The Loan Documents and any other documents executed in connection
herewith or therewith express the entire understanding of the parties with
respect to the transactions contemplated hereby. Neither this Credit Agreement
nor any term hereof may be changed, waived, discharged or terminated, except as
provided in Section 26.

                            25. WAIVER OF JURY TRIAL.

           Each of the Borrower and the Banks hereby waives its right to a jury
trial with respect to any action or claim arising out of any dispute in
connection with this Credit Agreement, the Revolving Credit Notes or any of the
other Loan Documents, any rights or obligations hereunder or thereunder or the

<PAGE>   78
                                      -71-

performance of which rights and obligations. Except as prohibited by law, the
Borrower hereby waives any right it may have to claim or recover in any
litigation referred to in the preceding sentence any special, exemplary,
punitive or consequential damages or any damages other than, or in addition to,
actual damages. The Borrower (a) certifies that no representative, agent or
attorney of any Bank or either of the Bank Agents has represented, expressly or
otherwise, that such Bank or such Bank Agent would not, in the event of
litigation, seek to enforce the foregoing waivers and (b) acknowledges that each
of the Bank Agents and the Banks have been induced to enter into this Credit
Agreement, the other Loan Documents to which it is a party by, among other
things, the waivers and certifications contained herein.

                     26. CONSENTS, AMENDMENTS, WAIVERS, ETC.

           Any consent or approval required or permitted by this Credit
Agreement to be given by all of the Banks may be given, and any term of this
Credit Agreement, the other Loan Documents or any other instrument related
hereto or mentioned herein may be amended, and the performance or observance by
the Borrower or any of its Subsidiaries of any terms of this Credit Agreement,
the other Loan Documents or such other instrument or the continuance of any
Default or Event of Default may be waived (either generally or in a particular
instance and either retroactively or prospectively) with, but only with, the
written consent of the Borrower and the written consent of the Majority Banks.
Notwithstanding the foregoing, the rate of interest on the Revolving Credit
Notes (other than interest accruing pursuant to Section 5.11.2 following the
effective date of any waiver by the Majority Banks of the Default or Event of
Default relating thereto), the term of the Revolving Credit Notes, the date
fixed for payment of any amounts owing pursuant to this Credit Agreement or the
other Loan Documents, the release of any of the Guarantors or all or
substantially all of any collateral held by the Agent for the benefit of the
Banks, the amount of the Commitments of the Banks (other than changes which are
contemplated and permitted by Section 19.1.2 hereof), and the amount of
Commitment Fee or Letter of Credit fees hereunder may not be changed without the
written consent of the Borrower and the written consent of each Bank; the
definition of Majority Banks may not be amended without the written consent of
all of the Banks; the amount of the administrative fee or any Letter of Credit
fees payable for the Agent's account may not be amended without the consent of
the Agent and Section 16 may not be amended without the written consent of the
Bank Agents. No waiver shall extend to or affect any obligation not expressly
waived or impair any right consequent thereon. No course of dealing or delay or
omission on the part of either of the Bank Agents or any Bank in exercising any
right shall operate as a waiver thereof or otherwise be prejudicial thereto. No
notice to or demand upon the Borrower shall entitle the Borrower to other or
further notice or demand in similar or other circumstances.

<PAGE>   79
                                      -72-


                                27. SEVERABILITY.

           The provisions of this Credit Agreement are severable and if any one
clause or provision hereof shall be held invalid or unenforceable in whole or in
part in any jurisdiction, then such invalidity or unenforceability shall affect
only such clause or provision, or part thereof, in such jurisdiction, and shall
not in any manner affect such clause or provision in any other jurisdiction, or
any other clause or provision of this Credit Agreement in any jurisdiction.

<PAGE>   80
                                      -73-

           IN WITNESS WHEREOF, the undersigned have duly executed this Credit
Agreement as a sealed instrument as of the date first set forth above.

                                             WESTERN DIGITAL CORPORATION



                                             By: /s/ D. Scott Mercer
                                                 -------------------------------
                                                 Name: D. Scott Mercer
                                                 Title: Chief Financial and
                                                        Administrative Officer


                                             NATIONSBANK OF TEXAS, N.A.,
                                             individually and as Syndication
                                             Agent



                                             By: /s/ William C. Collins
                                                 -------------------------------
                                                William C. Collins
                                                Senior Vice President


                                             THE FIRST NATIONAL BANK OF BOSTON,
                                             individually and as Agent


                                             By: /s/ Jay L. Massino
                                                 -------------------------------
                                                 Name: Jay L. Massino
                                                 Vice President

                                             UNION BANK OF CALIFORNIA, N.A.


                                             By: /s/ Scott Lance
                                                 -------------------------------
                                                 Name: Scott Lance
                                                 Title: Vice President

                                             BANQUE NATIONALE de PARIS


                                             By: /s/ Clive Bettles
                                                 -------------------------------
                                                 Name: Clive Bettles
                                                 Title: SVP and Manager


<PAGE>   81
                                      -74-



                                             By: /s/ Tjalling Terpstra
                                                 -------------------------------
                                                 Name: Tjalling Terpstra
                                                 Title: Vice President

                                             THE BANK OF NOVA SCOTIA


                                             By: /s/ J.S. York
                                                 -------------------------------
                                                 Name: J.S. York
                                                 Title: Vice President

                                             FLEET NATIONAL BANK


                                             By: /s/ [Signature]
                                                 -------------------------------
                                                 Name:
                                                 Title:


<PAGE>   82
                                   Schedule 1

                       Commitments; Commitment Percentages


<TABLE>
<CAPTION>
                                                                    COMMITMENT
BANK                                             COMMITMENT         PERCENTAGE
<S>                                             <C>                   <C>     
NationsBank of Texas, N.A.                      $ 30,750,000          23.6538%
Domestic Lending Office:
901 Main Street, 67th Floor
Dallas, TX  75283-1000
Attn:  Lori Stone, Vice President
Eurodollar Lending Office:
Same as Above

The First National Bank of Boston               $ 30,750,000          23.6538%
Domestic Lending Office
100 Federal Street
Boston, MA  02110
Attn:  High Technology Division
Eurodollar Lending Office:
Same as Above

Fleet National Bank                             $ 20,000,000          15.3846%
Domestic Lending Office
One Federal Street
Boston, MA  02211
Attn:  Frank Benesh, Managing Director
Eurodollar Lending Office:
Same as Above

Union Bank of California, N.A.                  $ 18,500,000          14.2308%
Domestic Lending Office:
550 South Hope Street, 5th Floor
Los Angeles, CA  90071
Attn:  Scott Lane, Vice President
Eurodollar Lending Office:
Same as Above

Banque Nationale de Paris                       $ 15,000,000          11.5385%
Domestic Lending Office
725 Figueroa Street
Los Angeles, CA  90017
Attn:  Mr. Tjalling Terpstra
Eurodollar Lending Office:
Same as Above

The Bank of Nova Scotia                         $ 15,000,000          11.5385%
Domestic Lending Office:
580 California Street, Suite 2100
San Francisco, CA  94104
Attn:  Werner Tillinger, Relationship
Manager
Eurodollar Lending Office:
Same as Above
</TABLE>


<PAGE>   83
                                       -2-



<TABLE>
<S>                                             <C>                     <C> 
Totals                                          $130,000,000            100%
</TABLE>


<PAGE>   84
                                  SCHEDULE 7.3


                              TITLES TO PROPERTIES



                                     (None)




                                                         [WESTERN DIGITAL LOGO]

<PAGE>   85
                                  Schedule 7.7
                                   Litigation


1.      Rodime plc

        On December 14, 1994, Rodime plc ("Rodime") filed suit against the
Company, asserting that one of its United States patents which relates to
3.5-inch disk drives is infringed by the Company's disk drive products. Rodime
had previously offered to grant the Company a royalty bearing license under
this and other Rodime patents. On April 11, 1994, in another case involving
this patent which was brought by Quantum Corporation, the court granted
Quantum's motion for summary judgment, finding certain key claims of the patent
in question to be invalid. On September 22, 1995, the Quantum decision was
upheld by the Federal Circuit Court of Appeals, and Rodime's petition for
rehearing has been denied. Rodime has filed a petition for writ of certiorari
with the U.S. Supreme Court, which has not yet determined if it will hear the
case. If the Court of Appeals' decision is not reversed by the Supreme Court,
the substantial portion of the claims in the Rodime suit against the Company
will be dismissed.

2.      Amstrad plc

        The Company was sued by Amstrad plc ("Amstrad") on December 4, 1992, in
Orange County Superior Court. The complaint alleged that disk drives supplied
to Amstrad by the Company in 1988 and 1989 were defective and caused damages to
Amstrad of not less than $186 million. The suit also seeks punitive damages.

        The Company has denied the material allegations of the complaint and
has filed cross-claims against Amstrad. Substantial discovery in the case is
currently being conducted. A tentative trial date of February 18, 1997, has
been established by the court.

        The Company's E&O insurance carrier has acknowledged its responsibility
to defend the case and to afford coverage. The policy limits, however, are well
below the amount of damages sought by Amstrad.


<PAGE>   86
[WESTERN DIGITAL LOGO]

                                 SCHEDULE 7.14

                          TRANSACTIONS WITH AFFILIATES

Loan to Employee


<TABLE>
<CAPTION>
<S>                                     <C>
Roger Johnson (Former Employee)         $500,000

Glenn Josephson (Former Employee)       $ 75,971

John Porcelli                           $  8,300

Ron Sinclair                            $ 86,774
                                        --------
                                        $671,045
                                        ========

                                [WESTERN DIGITAL LOGO]
</TABLE>


<PAGE>   87
                                SCHEDULE 7.17(d)

                            Environmental Compliance

1. Redhill Facility

In January 1991, Riedel Environmental Services removed a 2,000 gallon
underground storage tank (UST) and four underground concrete clarifiers from 
the site. According to Riedel's report, Underground Storage Tank Closure Report
for 3128 Redhill Avenue, Costa Mesa, CA Permit #92-013, dated April 1992, the
work was accomplished in accordance with city, county, state and federal
regulations. Soil samples were collected from approximately 2 feet below the
bottoms of the former locations of the UST, the sump associated with the UST, 
and each of the four clarifiers. The report indicates that the soils below the
former locations of the UST and clarifiers were minimally impacted by
chemicals; the report also describes the excavation and disposal of the
impacted soil.

In August 1994, Western Digital retained Harding Lawson Associates to conduct
investigation and closure of a potential groundwater issue at the above site.
On August 25, 1994, HLA submitted a workplan to the REGIONAL WATER QUALITY
CONTROL BOARD (RWQCB), Santa Ana Region, for additional site characterization.
The RWQCB approved HLA's workplan on October 20, 1994. On February 3, 1995, the
Final Report on additional Site Characterization was submitted to RWQCB
requesting formal closure of the above site.

During a November 1995 meeting with RWQCB, a report from a previous
investigation was made available for review. The report, performed for the U.S.
Environmental Protection Agency (EPA) Regional IX by URS Consultants, Inc.
(URS) in April, 1992, titled CERCLA Site Inspection Report, Western Digital
Corporation, 3128 Red Hill Avenue, Costa Mesa, CA, identified two historical
features previously unknown to Western Digital and HLA.

In November, 1995, HLA submitted a workplan to the RWQCB for additional site
investigation. The workplan was approved by the regional board in January, 1996.
All site investigation was completed in March 1996. Western Digital is reviewing
the Draft report at this time. The Final report will be submitted to RWQCB by
May, 1996.

Based on the result from the last round of investigation, Western Digital
Corporation intends to request a formal closure of the above site from the
RWQCB. 

<PAGE>   88

                                Schedule 7.18(a)

                                  Subsidiaries


<TABLE>
<CAPTION>
                                                                               Date of  
                                                    Jurisdiction of            Incorporation or
Name of Subsidiary                                  Incorporation              Acquisition

<S>                                                 <C>                        <C>
Selanar Corporation (**)                            California                 07/03/87
Selanar GmbH (**, 1)                                Germany                    07/03/87
Western Digital Canada Corporation                  Ontario, Canada            01/14/87
Western Digital Capital Corporation                 Delaware                   12/30/93
Western Digital CSG Corporation                     Delaware                   03/01/96
Western Digital (Deutschland) GmbH                  Germany                    06/27/83
Western Digital Europe (**)                         California                 04/20/87
Western Digital (France) SARL (2)                   France                     01/28/86
Western Digital Hong Kong Limited (3)               Hong Kong                  11/20/87
Western Digital Ireland, Ltd.                       Cayman Islands             04/12/83
Western Digital (I.S.) Limited (6)                  Ireland                    03/24/94
Western Digital Japan Ltd.                          Japan                      07/23/84
Western Digital (Malaysia) SDN BHD                  Malaysia                   11/12/73
Western Digital Netherlands B.V.                    The Netherlands            11/29/89
Western Digital Pacific Corporation (**)            California                 12/13/85
Western Digital Rochester, Inc. (**)                Delaware                   11/28/94
Western Digital (S.E. Asia) Pte Ltd.                Singapore                  02/12/90
Western Digital (Singapore) Pte Ltd. (4)            Singapore                  10/16/87
Western Digital Taiwan Co., Ltd. (5)                Taiwan, R.O.C.             06/07/88
Western Digital  (Taus - Singapore) Pte 
Ltd.(7)                                             Singapore                  08/21/95
Western Digital (U.K.) Limited                      England                    06/24/84
</TABLE>


(**)     Inactive

(1)      Subsidiary of Selanar Corporation; merged into Western Digital
         Deutschland GmbH in process in 10/95; change method to mandatory
         cancellation 5/96.

(2)      Subsidiary of Western Digital Corporation ("WDC" (999 shares) and 
         Western Digital (U.K.) Limited ("WDUK")(1 share).

(3)      Subsidiary of WDC and WDUK (1 share each) (WDUK holds share in trust 
         for WDC)

(4)      Subsidiary of Western Digital Ireland, Ltd. ("WDIL")

(5)      WDC is majority shareholder; one share owned by Western Digital Canada 
         Corporation, WDUK, Selanar Corporation, Western Digital (Malaysia) SDN 
         BHD, Western Digital Europe and Western Digital  Pacific Corporation

(6)      Subsidiary of WDC and Western Digital Ireland, Ltd. (1 share each)

(7)      Subsidiary of Western Digital (Singapore) Pte Ltd. (in turn owned by 
         WDIL)

<PAGE>   89

                                SCHEDULE 7.18(b)

                                 JOINT VENTURES


                                     (None)



                                                         [WESTERN DIGITAL LOGO]

<PAGE>   90
                                                                   Schedule 7.22


<TABLE>
<CAPTION>
<S>                                              <C>
[ACORD LOGO]    CERTIFICATE OF INSURANCE              ISSUE DATE (MM/DD/YY)
                                                      04/12/96

                                                 THIS CERTIFICATE IS ISSUED AS A MATTER OF INFORMATION ONLY AND CONFERS NO 
                                                 RIGHTS UPON THE CERTIFICATE HOLDER. THIS CERTIFICATE DOES NOT AMEND, EXTEND OR 
PRODUCER                                         ALTER THE COVERAGE AFFORDED BY THE POLICIES BELOW.
JOHNSON & HIGGINS OF CA
695 TOWN CENTER DRIVE, SUITE 700                                              COMPANIES AFFORDING COVERAGE
COSTA MESA, CA 92626
PH. 714/641-8899                                    COMPANY LETTER   A  ST. PAUL FIRE & MARINE INS. CO.
FAX 714/979-0797
                                                    COMPANY LETTER   B
INSURED
WESTERN DIGITAL CORPORATION                         COMPANY LETTER   C
8105 IRVINE CENTER DRIVE                            
IRVINE, CA 92718-2902                               COMPANY LETTER   D          

ATTN: STEPHEN PAGE                                  COMPANY LETTER   E

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

COVERAGES

THIS IS TO CERTIFY THAT THE POLICIES OF INSURANCE LISTED BELOW HAVE BEEN ISSUED TO THE INSURED NAMED ABOVE FOR THE POLICY PERIOD
INDICATED, NOTWITHSTANDING ANY REQUIREMENT, TERM OR CONDITION OF ANY CONTRACT OR OTHER DOCUMENT WITH RESPECT TO WHICH THIS
CERTIFICATE MAY BE ISSUED OR MAY PERTAIN, THE INSURANCE AFFORDED BY THE POLICIES DESCRIBED HEREIN IS SUBJECT TO ALL THE TERMS,
EXCLUSIONS AND CONDITIONS OF SUCH POLICIES. LIMITS SHOWN MAY HAVE BEEN REDUCED BY PAID CLAIMS.
</TABLE>




<TABLE>
<CAPTION>
                                                                               
                                                                                POLICY
                                                                              EXPIRATION
CO                                       POLICY         POLICY EFFECTIVE        DATE
LTR     TYPE OF INSURANCE                NUMBER         DATE (MM/DD/YY)       (MM/DD/YY)                LIMITS
- ----------------------------------------------------------------------------------------------------------------------------------
<S>  <C>                                <C>                 <C>                <C>           <C>                      <C>
     GENERAL LIABILITY                                                                       GENERAL AGGREGATE        $2,000,000.
                                                                                             
A    X  COMMERCIAL GENERAL LIABILITY                                                         PRODUCTS-COMP/OP AGG.    $2,000,000.
            CLAIMS MADE X OCCUR.        TE09401580           07/01/95          07/01/96      PERSONAL & ADV. INJURY   $1,000,000.
        OWNER'S & CONTRACTOR'S PROT.                                                         EACH OCCURRENCE          $1,000,000.
                                                                                             FIRE DAMAGE
                                                                                               (Any one fire)         $1,000,000.
                                                                                             MED. EXPENSE
                                                                                               (Any one person)       $    5,000.
- ----------------------------------------------------------------------------------------------------------------------------------
     AUTOMOBILE LIABILITY                                                                    COMBINED SINGLE LIMIT    $1,000,000.
                                                                                             
A    X  ANY AUTO                        TE09401580           07/01/95          07/01/96      BODILY INJURY            $
                                                                                                (Per Person)
        ALL OWNED AUTOS
                                                                                             BODILY INJURY            $
        SCHEDULED AUTOS                                                                         (Per Accident)

        HIRED AUTOS                                                                          PROPERTY DAMAGE          $

        GARAGE LIABILITY  
- ----------------------------------------------------------------------------------------------------------------------------------
     EXCESS LIABILITY                                                                        EACH OCCURRENCE          $20,000,000.
                                                                                             
A    X  UMBRELLA FORM                   TE09401580           07/01/95          07/01/96      AGGREGATE                $20,000,000.
        OTHER THAN UMBRELLA FORM
- ----------------------------------------------------------------------------------------------------------------------------------
                                                                                               STATUTORY LIMITS
A       WORKER'S COMPENSATION           WVA9400155           07/01/95          07/01/96      EACH ACCIDENT            $1,000,000.
               AND                                                                           DISEASE-POLICY LIMIT     $1,000,000.
        EMPLOYERS' LIABILITY                                                                 DISEASE-EACH EMPLOYEE    $1,000,000.
- ----------------------------------------------------------------------------------------------------------------------------------
     OTHER



- ----------------------------------------------------------------------------------------------------------------------------------
DESCRIPTION OF OPERATIONS/LOCATIONS/VEHICLES/SPECIAL ITEMS


- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>




<TABLE>
<CAPTION>
<S>                                                               <C>
CERTIFICATE HOLDER                                                CANCELLATION

EVIDENCE OF COVERAGE                                              SHOULD ANY OF THE ABOVE DESCRIBED POLICIES BE CANCELLED BEFORE
                                                                  THE EXPIRATION DATE THEREOF, THE ISSUING COMPANY WILL ENDEAVOR TO
                                                                  MAIL ____ DAYS WRITTEN NOTICE TO THE CERTIFICATE HOLDER NAMED TO
                                                                  THE LEFT, BUT FAILURE TO MAIL SUCH NOTICE SHALL IMPOSE NO
                                                                  OBLIGATION OR LIABILITY OF ANY KIND UPON THE COMPANY, ITS AGENTS
                                                                  OR REPRESENTATIVES.
                                                                  -----------------------------------------------------------------
                                                                  AUTHORIZED REPRESENTATIVE


ACCORD 25-S(7/90)                                                                                       (C) ACORD CORPORATION 1990
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>




<PAGE>   91
                                                                   Schedule 722
- -------------------------------------------------------------------------------
                                                                Date (MM/DD/YY)
[ACORD LOGO]                EVIDENCE OF PROPERTY INSURANCE         / / 12/15/96

  THIS IS EVIDENCE THAT INSURANCE AS IDENTIFIED BELOW HAS BEEN ISSUED, IS IN
  FORCE, AND CONVEYS ALL THE RIGHTS AND PRIVILEGES AFFORDED UNDER THE POLICY.
- -------------------------------------------------------------------------------
PRODUCER                         COMPANY
  RHH of Northern California       Allianz Insurance Company
  One Market                       3400 Riverside Drive, #300
  Spear Street Tower Ste. 2100     Burbank, CA 91505-4569
  San Francisco, CA 94105
                  415-543-9360

CODE                 SUB-CODE

- -------------------------------------------------------------------------------
INSURED                          LOAN NUMBER           POLICY NUMBER
  Western Digital Corporation                               CLP1025285
  P. O. BOX #19665              -----------------------------------------------
  8105 Irvine Center Drive      EFFECTIVE DATE   EXPIRATION DATE   CONT. UNTIL
  Irvine, CA 92713-9665         (MM/DD/YY)       (MM/DD/YY)        TERMINATED--
                                  7/01/95          7/01/96         IF CHECKED//
                                -----------------------------------------------
                                THIS REPLACES PRIOR EVIDENCE DATED:

- -------------------------------------------------------------------------------
PROPERTY INFORMATION

LOCATION/DESCRIPTION
                             as filed with company

- -------------------------------------------------------------------------------
COVERAGE INFORMATION
                      COVERAGE/PERILS/FORMS    AMOUNT OF INSURANCE    DEDUCTIBLE
- -------------------------------------------------------------------------------
                All Risk incl EQ & Flood
                $1,000,000,000 Blanket Limit                            100,000
                Manuscript Form

                Covers Buildings, Personal
                Property, Rents, Tenants
                Improvements & Betterments

                Bailer & Machinery,
                Business Income
                Replacement Cost

- -------------------------------------------------------------------------------
REMARKS (including Special Conditions)

  Earthquake sublimit $10,000,000 with 5% TIV Deductible.
  Flood sublimit $50,000,000 with $100,000 Deductible.
  Ocean Cargo #MC1287 with Lloyd's Underwriters: $4,000,000 Steamer under Deck,
  $500,000 Steamer on Deck, $10 mil any one aircraft, $4 mil any one land 
  convey.
- -------------------------------------------------------------------------------
CANCELLATION

  THE POLICY IS SUBJECT TO THE PREMIUMS, FORMS, AND RULES IN EFFECT FOR EACH
  POLICY PERIOD. SHOULD THE POLICY BE TERMINATED, THE COMPANY WILL GIVE THE
  ADDITIONAL INTEREST IDENTIFIED BELOW 30 DAYS WRITTEN NOTICE, AND WILL SEND
  NOTIFICATION OF ANY CHANGES TO THE POLICY THAT WOULD AFFECT THAT INTEREST, IN
  ACCORDANCE WITH THE POLICY PROVISIONS OR AS REQUIRED BY LAW.
- -------------------------------------------------------------------------------
ADDITIONAL INTEREST

NAME AND ADDRESS                NATURE OF INTEREST

                                / / MORTGAGEE        / / ADDITIONAL INSURED
  To Whom It May Concern        
                                / / LOSS PAYEE       / / OTHER
                                                              -----------------
                                -----------------------------------------------
                                SIGNATURE OF AUTHORIZED AGENT OF COMPANY

                                /s/ [SIGNATURE]                          346355
ACORD 27 (2/88)                                      (c) ACORD CORPORATION 1985
- -------------------------------------------------------------------------------

<PAGE>   92

[WESTERN DIGITAL LOGO]








                                  SCHEDULE 9.1


                             EXISTING INDEBTEDNESS


                                     (None)






                                                          [WESTERN DIGITAL LOGO]





<PAGE>   93

[WESTERN DIGITAL LOGO]








                                  SCHEDULE 9.2


                                 EXISTING LIENS


                                     (None)






                                                         [WESTERN DIGITAL LOGO]





<PAGE>   94

                                  SCHEDULE 9.3


                              EXISTING INVESTMENTS
                                (As of 4-15-96)


INVESTMENTS

        Investment in Silmag                    3,000,000

        Investment in San Disk                  2,000,000

        Investment in Wang                         52,366

        Investment in JTS                       4,100,000

        Investment in Censtor                   3,000,000
                                               ----------

TOTAL INVESTMENTS                              12,152,366

 

<PAGE>   95
                                                                      EXHIBIT A

                             REVOLVING CREDIT NOTE

$________________                                          as of April 24, 1996

        FOR VALUE RECEIVED, the undersigned WESTERN DIGITAL CORPORATION, a
Delaware corporation (the "Borrower"), hereby promises to pay to the order of
[INSERT NAME OF BANK] (the "Bank") at the Agent's Head Office (as defined in
the Credit Agreement as hereinafter defined):

                (a) prior to or on Revolving Credit Loan Maturity Date the
        principal amount of [INSERT COMMITMENT AMOUNT] or, if less, the
        aggregate unpaid principal amount of Revolving Credit Loans advanced by
        the Bank to the Borrower pursuant to the Revolving Credit Agreement
        dated as of April 24, 1996 (as amended and in effect from time to time,
        the "Credit Agreement"), among the Borrower, the Bank and other parties
        thereto;

                (b) the principal outstanding hereunder from time to time at the
        times provided in the Credit Agreement; and

                (c) interest on the principal balance hereof from time to time
        outstanding from the Closing Date under the Credit Agreement through and
        including the maturity date hereof at the times and at the rate provided
        in the Credit Agreement.

        This Note evidences borrowings under and has been issued by the
Borrower in accordance with the terms of the Credit Agreement. The Bank and any
holder hereof is entitled to the benefits of the Credit Agreement and the other
Loan Documents, and may enforce the agreements of the Borrower contained
therein, and any holder hereof may exercise the respective remedies provided
for thereby or otherwise available in respect thereof, all in accordance with
the respective terms thereof. All capitalized terms used in this Note and not
otherwise defined herein shall have the same meanings herein as in the Credit
Agreement. 

        The Borrower irrevocably authorizes the Bank to make or cause to be
made, at or about the time of the Drawdown Date of any Revolving Credit Loan or
at the time of receipt of any payment of principal of this Note, an appropriate
notation on the grid attached to this Note, or the continuation of such grid,
or any other similar record, including computer records, reflecting the making
of such Revolving Credit Loan or (as the case may be) the receipt of such
payment. 

<PAGE>   96
                                      -2-

The outstanding amount of the Revolving Credit Loans set forth on the grid
attached to this Note, or the continuation of such grid, or any other similar
record, including computer records, maintained by the Bank with respect to any
Revolving Credit Loans shall be prima facie evidence of the principal amount
thereof owning and unpaid to the Bank, but the failure to record, or any error
in so recording, any such amount on any such grid, continuation or other record
shall not limit or otherwise affect the obligation of the Borrower hereunder or
under the Credit Agreement to make payments of principal of and interest on this
Note when due.  

        The Borrower has the right in certain circumstances and the obligation
under certain other circumstances to prepay the whole or part of the principal
of this Note on the terms and conditions specified in the Credit Agreement. 

        If any one or more of the Events of Default shall occur, the entire
unpaid principal amount of this Note and all of the unpaid interest accrued
thereon may become or be declared due and payable in the manner and with the
effect provided in the Credit Agreement.

        No delay or omission on the part of the Bank or any holder hereof in
exercising any right hereunder shall operate as a waiver of such right or of
any other rights of the Bank or such holder, nor shall any delay, omission or
waiver on any one occasion be deemed a bar or waiver of the same or any other
right on any further occasion.

        The Borrower and every endorser and guarantor of this Note or the
obligation represented hereby waives presentment, demand, notice, protest and
all other demands and notices in connection with the delivery, acceptance,
performance, default or enforcement of this Note, and assents to any extension
or postponement of the time of payment or any other indulgence, to any
substitution, exchange or release of collateral and to the addition or release
of any other party or person primarily or secondarily liable.

        THIS NOTE AND THE OBLIGATIONS OF THE BORROWER HEREUNDER SHALL FOR ALL
PURPOSES BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF
NEW YORK (EXCLUDING THE LAWS APPLICABLE TO CONFLICTS OR CHOICE OF LAW). THE
BORROWER AGREES THAT ANY SUIT FOR THE ENFORCEMENT OF THIS NOTE MAY BE BROUGHT IN
THE COURTS OF THE STATE OF NEW YORK OR ANY FEDERAL COURT SITTING THEREIN AND
THE CONSENT TO THE NONEXCLUSIVE JURISDICTION OF SUCH COURT AND THE SERVICE OF
PROCESS IN ANY SUCH SUIT BEING MADE UPON THE BORROWER BY MAIL AT THE ADDRESS
SPECIFIED IN SECTION 20 OF THE CREDIT AGREEMENT. THE BORROWER HEREBY WAIVES ANY
OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE VENUE OF ANY SUCH SUIT OR
ANY SUCH COURT OF THAT SUCH SUIT IS BROUGHT IN AN INCONVENIENT COURT.


<PAGE>   97
                                      -3-

        This Note shall be deemed to take effect as a sealed instrument under
the laws of the State of New York.

<PAGE>   98

                                      -4-


        IN WITNESS WHEREOF, the undersigned has caused this Revolving Credit
Note to be signed in its corporate name and its corporate seal to be impressed
thereon by its duly authorized officer as of the day and year first above 
written.


[Corporate Seal]

                                                WESTERN DIGITAL CORPORATION


                                                By: 
                                                   ----------------------------
                                                   Title:



<PAGE>   99


<TABLE>
<CAPTION>

                               Amount of           Balance of
              Amount         Principal Paid         Principal          Notation
  Date       of Loan           or Prepaid            Unpaid            Made By:
- --------------------------------------------------------------------------------
<S>       <C>              <C>                 <C>                   <C>

________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________


</TABLE>


<PAGE>   100
                                                                      EXHIBIT B

                              FORM OF LOAN REQUEST

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

The First National Bank of Boston, as Agent
100 Federal Street
Boston, Massachusetts 02110

        Attention: High Technology Division

        Re: Loan Request

Ladies and Gentlemen:

        Reference is hereby made to that certain Revolving Credit Agreement,
dated as of April 24, 1996 (as the same may be amended and in effect from time
to time, the "Credit Agreement"), by and among Western Digital Corporation (the
"Borrower"), NationsBank of Texas, N.A. ("Nations"), The First National Bank of
Boston ("FNBB"), the other lending institutions party thereto (collectively
with Nations and FNBB, the "Banks"), and NationsBank of Texas, N.A. as
syndication agent for itself and the other Banks (the "Syndication Agent"), and
The First National Bank of Boston as administrative agent for itself and the
other Banks (the "Agent"). Capitalized terms which are used herein without
definition and which are defined in the Credit Agreement shall have the same
meanings herein as in the Credit Agreement.

        Pursuant to Section 2.6 of the Credit Agreement, we hereby request
that a Revolving Credit Loan consisting of [a Base Rate Loan in the principal
amount of $________, or a Eurodollar Rate Loan in the principal amount of
$_______ with an Interest Period of _________] be made on ____________ __,
____. We understand that this request is irrevocable and binding on us and
obligates us to accept the requested Revolving Credit Loan on such date.

        We hereby certify (a) that the aggregate outstanding principal amount
of the Revolving Credit Loans on today's date is $__________, (b) that we will
use the proceeds of the requested Revolving Credit Loan in accordance with the
provisions of the Credit Agreement, (c) that each of the representations and
warranties contained in the Credit Agreement or in any document or instrument
delivered pursuant to or in connection with the Credit Agreement was true in
all material respects as of the date as of which it was made and is true at and
as of the date hereof (except to the extent of changes resulting



<PAGE>   101
The First National Bank of Boston,
        as Agent
Page 2


from transactions contemplated or permitted by the Credit Agreement and changes
occurring in the ordinary course of business that singly or in the aggregate
are not materially adverse, and to the extent that such representations and
warranties related expressly to an earlier date) and (d) that no Default or
Event of Default has occurred and is continuing.

                                        Very truly yours,


                                        WESTERN DIGITAL CORPORATION


                                        By:________________________________
                                        Title:

<PAGE>   102
                                                                       EXHIBIT C

                         FORM OF COMPLIANCE CERTIFICATE

                                     [date]

The First National Bank of Boston
100 Federal Street
Boston, Massachusetts  02110

        Attention:  High Technology Division

Ladies and Gentlemen:

        Reference is made to the Revolving Credit Loan Agreement, dated as of
April 24, 1996 (as amended and in effect from time to time, the "Credit
Agreement"), by and among Western Digital Corporation (the "Borrower"),
NationsBank of Texas, N.A., The First National Bank of Boston and the other
lending institutions listed on Schedule 1 to the Credit Agreement (collectively,
the "Banks"), NationsBank of Texas, N.A. as syndication agent for the Banks (the
"Syndication Agent") and The First National Bank of Boston as administrative
agent for the Banks (the "Agent", and, collectively with the Syndication Agent,
the "Bank Agents"). Capitalized terms which are used herein without definition
and which are defined in the Credit Agreement shall have the respective meanings
assigned to such terms in the Credit Agreement.

        Pursuant to Section 9.4(c) of the Credit Agreement, the principal
financial or accounting officer of the Borrower hereby certifies to you as
follows: (a) the information furnished in the calculations attached hereto was
true and correct as of the last day of the fiscal [year] [quarter] [month]
ended______________; (b) as of the date of this certificate, there exists no
Default or Event of Default or condition which would, with either or both the
giving of notice or the lapse of time, result in a Default or an Event of
Default; and (c) the financial statements delivered herewith were prepared in
accordance with generally accepted accounting principles applied on a basis
consistent with prior periods.

        IN WITNESS WHEREOF, the undersigned officer has executed this Compliance
Certificate as of the date first written above.

                                       WESTERN DIGITAL CORPORATION

                                       By:
                                          --------------------------------------
                                          Title:


<PAGE>   103
                                      -2-


                             COMPLIANCE CERTIFICATE

                           WESTERN DIGITAL CORPORATION


<TABLE>
<S>                                                                               <C>              <C>
10.1.    PROFITABLE OPERATIONS

         (a)      Consolidated Net Income for quarter ended _______                                $___________
         (b)      Consolidated Net Income for immediately preceding              
                    fiscal quarter                                                                 $___________
                    (not to be less than $1.00 for any two consecutive           
                      fiscal quarters)                                           
         (c)      Consolidated Net Operating Income for quarter ended _____                        $___________
         (d)      Consolidated Net Operating Income for immediately              
                    preceding fiscal quarter                                                       $___________
                    (not to be less than $1.00 for any two consecutive           
                      fiscal quarters)                                           
                                                                                 
10.2.    FIXED RATE COVERAGE RATIO                                               
                                                                                 
         (a)      EBITDA for such period                                                           $___________
                  (i)      Consolidated Net Income for such                      
                             period, plus (without duplication)                   $__________
                  (ii)     depreciation for such period, plus                     $__________
                  (iii)    amortization for such period, plus                     $__________
                  (iv)     income tax expense for such period, plus               $__________
                  (v)      Consolidated Total Interest Expense                   
                             paid or accrued during such period                   $__________
         (b)      Rental Obligations for such period                                               $___________
         (c)      Sum of (a) plus (b)                                                              $___________
         (d)      Consolidated Total Interest Expense for such period                              $___________
         (e)      Rental Obligations for such period                                               $___________
         (f)      Sum of (d) plus (e)                                                              $___________
         (g)      Ratio of (c) to (f)                                                              ______:______
                  (Not to be less than 2.00:1.00 as at the end of any            
                    fiscal quarter)                                              
                                                                                 
10.3.    MINIMUM LIQUIDITY                                                       
                                                                                 
         (a)      Cash of the Borrower for such period                                             $___________
         (b)      Current Accounts Receivable of the Borrower for such period     $___________
         (c)      Sum of (a) plus (b)                                                              $___________
         (d)      Accounts payable of the Borrower for such period                                 $___________
         (e)      Senior Funded Indebtedness for such period                                       $___________
         (f)      Sum of (d) plus (e)                                                              $___________
         (g)      Ratio of (c) to (f)                                                              _______:_____
                  (Not to be less than 1.25:1.00 at any time)                    
</TABLE>


<PAGE>   104
                                      -3-



<TABLE>
<S>                                                                                      <C> 
10.4.    CONSOLIDATED NET WORTH                                                  
                                                                                 
         (a)      Consolidated Net Worth at time of determination                               $___________
                  (i)      Consolidated Total Assets for such period,                    $___________
                           minus                                                 
                  (ii)     Consolidated Total Liabilities for such period,               $___________
                           minus                                                 
                  (iii)    any subscriptions receivable for such period                  $___________
         (b)      seventy five percent (75%) of positive Consolidated Net Income for
                  such period                                                                   $___________
         (c)      one hundred percent (100%) of purchase price paid during
                  such period to repurchase capital stock                                       $___________
         (d)      Sum of (a) plus (b), less (c)                                                 $___________
                  (Not to be less at any time than the greater of $375,000,000
                    or the sum of $375,000,000 plus (d))
</TABLE>


<PAGE>   105
                                                                     EXHIBIT D


                           ASSIGNMENT AND ACCEPTANCE

                            Dated as of _____, 19__

        Reference is made to the Revolving Credit Agreement, dated as of April
24, 1996 (as from time to time amended and in effect, the "Credit Agreement"),
by and among WESTERN DIGITAL CORPORATION, a Delaware corporation (the
"Borrower"), the banking institutions referred to therein as Banks
(collectively, the "Banks"), and THE FIRST NATIONAL BANK OF BOSTON, a national
banking association, as agent (in such capacity, the "Agent") for the Banks.
Capitalized terms used herein and not otherwise defined shall have the meanings
assigned to such terms in the Credit Agreement.

        __________________ (the "Assignor") and ________________ (the
"Assignee") hereby agree as follows:

        1.  ASSIGNMENT. Subject to the terms and conditions of this Assignment
and Acceptance, the Assignor hereby sells and assigns to the Assignee, and the
Assignee hereby purchases and assumes without recourse to the Assignor, a 
$__________ interest in and to the rights, benefits, indemnities and
obligations of the Assignor under the Credit Agreement equal to __% in respect
of the Total Commitment immediately prior to the Effective Date (as hereinafter 
defined).

        2.  ASSIGNOR'S REPRESENTATIONS. The Assignor (a) represents and
warrants that (i) it is legally authorized to enter into this Assignment and
Acceptance, (ii) as of the date hereof, its Commitment is $__________, its
Commitment Percentage is __%, the aggregate outstanding principal balance of
its Revolving Credit Loans equals $__________, the aggregate amount of its
Letter of Credit Participations equals $__________ (in each case after giving
effect to the assignment contemplated hereby but without giving effect to any
contemplated assignments which have not yet become effective), and (iii)
immediately after giving effect to all assignments which have not yet become
effective, the Assignor's Commitment Percentage will be sufficient to give
effect to this Assignment and Acceptance, (b) makes no representation or
warranty, express or implied, and assumes no responsibility with respect to any
statements, warranties or representations made in or in connection with the
Credit Agreement or any of the other Loan Documents or the execution, legality,
validity, enforceability, genuineness, sufficiency or value of the Credit
Agreement, the other Loan Documents or any other instrument or document
furnished pursuant thereto or the attachment, perfection or priority of any


<PAGE>   106
                                      -2-

security interest or mortgage, other than that it is the legal and beneficial
owner of the interest being assigned by it hereunder free and clear of any
claim or encumbrance; (c) makes no representation or warranty and assumes no
responsibility with respect to the financial condition of the Borrower or any
of its Subsidiaries or any other Person primarily or secondarily liable in
respect of any of the Obligations, or the performance or observance by the
Borrower or any of its Subsidiaries or any other Person primarily or
secondarily liable in respect of any of the Obligations of any of its
obligations under the Credit Agreement or any of the other Loan Documents or
any other instrument or document delivered or executed pursuant thereto; and
(d) attaches hereto the Revolving Credit Note delivered to it under the Credit
Agreement. 

        The Assignor requests that the Borrower exchange the Assignor's
Revolving Credit Note for new Revolving Credit Notes payable to the Assignor
and the Assignee as follows.


<TABLE>
<CAPTION>

Notes Payable to                          Amount of Revolving
  the Order of:                               Credit Note
- ----------------                          -------------------
<S>                                       <C>
Assignor                                  $*
Assignee                                  $*
</TABLE>


        3.  ASSIGNEE's REPRESENTATIONS. The Assignee (a) represents and
warrants that (i) it is duly and legally authorized to enter into this
Assignment and Acceptance, (ii) the execution, delivery and performance of this
Assignment and Acceptance do not conflict with any provision of law or of the
charter or by-laws of the Assignee, or of any agreement binding on the
Assignee, (iii) all acts, conditions and things required to be done and
performed and to have occurred prior to the execution, delivery and performance
of this Assignment and Acceptance, and to render the same the legal, valid and
binding obligation of the Assignee, enforceable against it in accordance with
its terms, having been done and performed and have occurred in due and strict
compliance with all applicable laws; (b) confirms that it has received a copy
of the Credit Agreement, together with copies of the most recent financial
statements delivered pursuant to Sections 7.4, 8.4 thereof and such other
documents and information as it has deemed appropriate to make its own credit
analysis and decision to enter into this Assignment and Acceptance; (c) agrees
that it will, independently and without reliance upon the Assignor, the Agent
or any other Bank and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or
not taking action under the Credit Agreement; (d) represents and warrants that
it is an Eligible Assignee; (e) appoints and authorizes the Agent to take such
action as agent on its behalf and to exercise such powers under the Credit
Agreement and the other Loan Documents as are delegated to the Agent by the
terms thereof, together with such powers as are reasonably incidental thereto;
(f) agrees that it will perform in accordance with their terms all the
obligations which by the terms of the Credit Agreement are required to be
performed by it 

<PAGE>   107
                                      -3-

as a Bank; and (g) acknowledges that it has made arrangements with the Assignor
satisfactory to the Assignee with respect to its pro rata share of Letter of
Credit Fees in respect of outstanding Letters of Credit.

        4.  EFFECTIVE DATE. The effective date for this Assignment and
Acceptance shall be __________ (the "Effective Date"). Following the execution
of this Assignment and Acceptance, each party hereto shall deliver its duly
executed counterpart hereof to the Agent for acceptance by the Agent and
recording in the Register by the Agent. Schedule 1 to the Credit Agreement
shall thereupon be replaced as of the Effective Date by the Schedule 1 annexed
hereto. 

        5.  RIGHTS UNDER CREDIT AGREEMENT. Upon such acceptance and recording,
from and after the Effective Date, (a) the Assignee shall be a party to the
Credit Agreement and, to the extent provided in this Assignment and Acceptance,
have the rights and obligations of a Bank thereunder, and (ii) the Assignor
shall, with respect to that portion of its interest under the Credit Agreement
assigned hereunder, relinquish its rights and be released from its obligations
under the Credit Agreement; provided, however, that the Assignor shall retain
its rights to be indemnified pursuant to Section 17 of the Credit Agreement
with respect to any claims or actions arising prior to the Effective Date.

        6.  PAYMENTS. Upon such acceptance of this Assignment and Acceptance by
the Agent and such recording, from and after the Effective Date, the Agent
shall make all payments in respect of the rights and interests assigned hereby
(including payments of principal, interest, fees and other amounts) to the
Assignee. The Assignor and the Assignee shall make any appropriate adjustments
in payments for periods prior to the Effective Date by the Agent or with
respect to the making of this assignment directly between themselves.

        7.  GOVERNING LAW. THIS ASSIGNMENT AND ACCEPTANCE IS INTENDED TO TAKE
EFFECT AS A SEALED INSTRUMENT TO BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF NEW YORK (WITHOUT REFERENCE TO CONFLICT OF
LAWS). 

        8.  COUNTERPARTS. This Assignment and Acceptance may be executed in any
number of counterparts which shall together constitute but one and the same
agreement. 

<PAGE>   108
                                      -4-

        IN WITNESS WHEREOF, intending to be legally bound, each of the
undersigned has caused this Assignment and Acceptance to be executed on its
behalf by its officer thereunto duly authorized, as of the date first above
written. 

                                        [INSERT NAME OF ASSIGNEE]



                                        By: ________________________________
                                            Title:

                                        [INSERT NAME OF ASSIGNOR]



                                        BY: ________________________________
                                            Title:

CONSENTED TO:

WESTERN DIGITAL
CORPORATION



By: ______________________________
    Title:

THE FIRST NATIONAL
BANK OF BOSTON, as
Agent



By: ______________________________
    Title:

<PAGE>   109

                                                        EXHIBIT E


                        FORM OF INSTRUMENT OF ACCESSION

                           Dated as of______________



        Reference is hereby made to the Revolving Credit Agreement dated as of
April 24, 1996 (as heretofore and from time to time amended and in effect, the
"Credit Agreement"), by and among Western Digital Corporation, a Delaware
corporation (the "Borrower"), NationsBank of Texas, N.A., The First National
Bank of Boston and the other lending institutions set forth on Schedule 1 to
the Credit Agreement (collectively, the "Banks"), NationsBank of Texas, N.A. as
syndication agent for the Banks (the "Syndication Agent") and The First
National Bank of Boston as administrative agent for the Banks (the "Agent",
and, collectively with the Syndication Agent, the "Bank Agents"). Capitalized
terms used herein and not otherwise defined shall have the meanings assigned to
such terms in the Credit Agreement.

        Pursuant to the terms of Section 19.1.2 of the Credit Agreement, the
Borrower, the Bank Agents and [INSERT NAME OF ACCEDING BANK] (the "Acceding
Bank") hereby agree as follows:

        1.  Subject to the terms and conditions of this Accession Agreement,
the Acceding Bank hereby agrees to assume, without recourse to the Banks or the
Bank Agents, on the Effective Date (as defined below), a Commitment of $_______
in accordance with the terms and conditions set forth in the Credit Agreement.
Upon such assumption, the Total Commitment shall be automatically increased by
the amount of such assumption. The Acceding Bank hereby agrees to be bound by,
and hereby requests the agreement of the Borrower and the Bank Agents that the
Acceding Bank shall be entitled to the benefits of, all of the terms,
conditions and provisions of the Credit Agreement as if the Acceding Bank had
been one of the lending institutions originally executing the Credit Agreement
as a "Bank"; provided that nothing herein shall be construed as making the
Acceding Bank liable to the Borrower or the other Banks in respect of any acts
or omissions of any party to the Credit Agreement or in respect of any other
event occurring prior to the Effective Date (as defined below) of this
Accession Agreement.

        2.  The Acceding Bank (a) represents and warrants that (i) it is duly
and legally authorized to enter into this Accession Agreement, (ii) the
execution, delivery and performance of this Accession Agreement do not conflict
with any provision of law or of the charter or by-laws of the Acceding Bank, or
of any agreement binding on the Acceding Bank, (iii) all acts, conditions and
things required to be done and performed and to have occurred prior to the
execution, deliver and performance of this Accession Agreement, and to render
the same the legal, valid and binding obligation of the Acceding Bank,
enforceable against it in accordance with its terms, have been done and
performed and have occurred in due and strict compliance with all applicable
laws; (b) confirms that it has


<PAGE>   110
                                      -2-

received a copy of the Credit Agreement, together with copies of the most recent
financial statements delivered pursuant to sections 7.4 and 8.4 thereof and
such other documents and information as it has deemed appropriate to make its
own credit analysis and decision to enter into this Accession Agreement; (c)
agrees that it will, independently and without reliance upon the Banks or
either of the Bank Agents and based on such documents and information as it
shall deem appropriate at the time, continue to make its own credit decisions in
taking or not taking action under the Credit Agreement; (d) represents and
warrants that it is an Eligible Assignee; (e) appoints and authorizes the Bank
Agents to take such action as agents on its behalf and to exercise such powers
under the Credit Agreement and the other Loan Documents as are delegated to
each of the Bank Agents by the terms thereof, together with such powers as are
reasonably incidental thereto; (f) agrees that it will perform in accordance
with their terms all of the obligations which by the terms of the Credit
Agreement are required to be performed by it as a Bank; and acknowledges that
it has made arrangements with the Agent satisfactory to the Acceding Bank with
respect to its pro rata share of Letter of Credit Fees in respect of
outstanding Letters of Credit.

        3.  The Acceding Bank hereby requests that the Borrower issue a new
Revolving Credit Note payable to the order of the Acceding Bank in the
principal amount of $___. In the event the Acceding Bank is also a Bank party
to the Credit Agreement immediately prior to the Effective Date of this
Accession Agreement, that such Acceding Bank agrees to deliver to the Borrower,
as soon as reasonably practicable after the Effective Date (as defined below),
the prior Revolving Credit Note held by it prior to the issuance of the new
Revolving Credit Note, marked "Cancelled".

        4.  The effective date for this Accession Agreement shall be [Insert
Effective Date] (the "Effective Date"). Following the execution of this
Accession Agreement by the Borrower and the Acceding Bank, it will be
delivered to the Bank Agents for acceptance. Upon acceptance by the Bank
Agents, Schedule 1 to the Credit Agreement shall thereupon be replaced as of
the Effective Date by the Schedule 1 annexed hereto. The Agent shall
thereafter notify the other Banks of the revised Schedule 1.

        5.  Upon such acceptance, from and after the Effective Date, the
Borrower shall make all payments in respect of the Acceding Bank Commitment
(including payments of principal, interest, fees and other amounts) to the
Agent for the account of the Acceding Bank.

        6.  THIS ACCESSION AGREEMENT SHALL FOR ALL PURPOSES BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK (WITHOUT
REFERENCE TO CONFLICTS OF LAW).

        7.  This Accession Agreement may be executed in any number of
counterparts which shall together constitute but one and the same agreement.


<PAGE>   111

                                      -3-

        IN WITNESS WHEREOF, intending to be legally bound, each of the
undersigned has caused this Accession Agreement to be executed on its behalf by
its officer thereunto duly authorized, to take effect as a sealed instrument as
of the date first above written.


                                WESTERN DIGITAL CORPORATION


                                By:___________________________

                                Title:________________________




                                NATIONSBANK OF TEXAS, N.A., as
                                  Syndication Agent


                                By:___________________________

                                Title:________________________


                                

                                THE FIRST NATIONAL BANK OF BOSTON, 
                                  as Agent



                                By:___________________________

                                Title:________________________





                                [NAME OF ACCEDING BANK]



                                By:___________________________

                                Title:________________________




<PAGE>   1
                                                                   EXHIBIT 10.36

- --------------------------------------------------------------------------------
                                 FIRST AMENDMENT
                          TO REVOLVING CREDIT AGREEMENT
- --------------------------------------------------------------------------------


         First Amendment dated as of June 27, 1996 to Revolving Credit Agreement
(the "First Amendment"), by and among WESTERN DIGITAL CORPORATION, a Delaware
corporation (the "Borrower"), and NATIONSBANK OF TEXAS, N.A., THE FIRST NATIONAL
BANK OF BOSTON and the other lending institutions listed on Schedule 1 to the
Credit Agreement (as hereinafter defined) (the "Banks"), amending certain
provisions of the Revolving Credit Agreement dated as of April 24, 1996 (as
amended and in effect from time to time, the "Credit Agreement") by and among
the Borrower, the Banks, NationsBank of Texas, N.A. as syndication agent for the
Banks (the "Syndication Agent") and The First National Bank of Boston as
administrative agent (the "Agent", and, collectively with the Syndication Agent,
the "Bank Agents") for the Banks. Terms not otherwise defined herein which are
defined in the Credit Agreement shall have the same respective meanings herein
as therein.

         WHEREAS, the Borrower and the Majority Banks have agreed to modify
certain terms and conditions of the Credit Agreement as specifically set forth
in this First Amendment;

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

         SECTION 1. AMENDMENT TO SECTION 1 OF THE CREDIT AGREEMENT. Section 1.1
of the Credit Agreement is hereby amended by deleting the definition of
"Eligible Assignee" in its entirety and restating it as follows:

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

<PAGE>   2
                                      -2-


         SECTION 2. AMENDMENT TO SECTION 8 OF THE CREDIT AGREEMENT. Section 8.4 
of the Credit Agreement is hereby amended as follows:

         (a) Section 8.4(a) of the Credit Agreement is hereby amended by
deleting the words "ninety (90) days" which appear in Section 8.4(a) and
substituting in place thereof the words "one hundred (100) days";

         (b) Section 8.4(b) of the Credit Agreement is hereby amended by
deleting the words "forty-five (45) days" which appear in Section 8.4(b) and
substituting in place thereof the words "fifty (50) days"; and

         (c) Section 8.4(c) of the Credit Agreement is hereby amended by
inserting immediately after the words "certified by the principal financial or
accounting officer" the words "or the treasurer".

         SECTION 3. CONDITIONS TO EFFECTIVENESS. This First Amendment shall not
become effective until the Agent receives a counterpart of this First Amendment
executed by the Borrower, the Majority Banks and the Guarantors.

         SECTION 4. REPRESENTATIONS AND WARRANTIES. The Borrower hereby repeats,
on and as of the date hereof, each of the representations and warranties made by
it in Section 7 of the Credit Agreement (except to the extent of changes
resulting from matters contemplated or permitted by the Credit Agreement and the
other Loan Documents, changes occurring in the ordinary course of business that
singly or in the aggregate are not materially adverse, and to the extent that
such representations and warranties relate expressly to an earlier date),
provided, that all references therein to the Credit Agreement shall refer to
such Credit Agreement as amended hereby. In addition, the Borrower hereby
represents and warrants that the execution and delivery by the Borrower of this
First Amendment and the performance by the Borrower of all of its agreements and
obligations under the Credit Agreement as amended hereby are within the
corporate authority of the Borrower and have been duly authorized by all
necessary corporate action on the part of the Borrower.

         SECTION 5. RATIFICATION, ETC. Except as expressly amended hereby, the
Credit Agreement and all documents, instruments and agreements related thereto
are hereby ratified and confirmed in all respects and shall continue in full
force and effect. The Credit Agreement and this First Amendment shall be read
and construed as a single agreement. All references in the Credit Agreement or
any related agreement or instrument to the Credit Agreement shall hereafter
refer to the Credit Agreement as amended hereby.

         SECTION 6. NO WAIVER. Nothing contained herein shall constitute a
waiver of, impair or otherwise affect any Obligations, any other obligation of
the Borrower or any rights of the Bank Agents or the Banks consequent thereon.

         SECTION 7. COUNTERPARTS. This First Amendment may be executed in one or
more counterparts, each of which shall be deemed an original but which together
shall constitute one and the same instrument.

         SECTION 8. GOVERNING LAW. THIS FIRST AMENDMENT SHALL BE GOVERNED BY,
AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK (WITHOUT
REFERENCE TO CONFLICT OF LAWS).

<PAGE>   3
                                      -3-


         IN WITNESS WHEREOF, the parties hereto have executed this First
Amendment as a document under seal as of the date first above written.

                                       WESTERN DIGITAL CORPORATION



                                       By:  /s/ J. R. Eckstardt
                                          --------------------------------------
                                       Title:  Vice President and Treasurer


                                       NATIONSBANK OF TEXAS, N.A.



                                       By:  /s/ Lori Stone
                                          --------------------------------------
                                       Title:  Vice President


                                       THE FIRST NATIONAL BANK OF BOSTON



                                       By:  /s/ Jay L. Massino
                                          --------------------------------------
                                       Title:  Vice President


                                       UNION BANK OF CALIFORNIA, N.A.



                                       By:  /s/ Scott Lance
                                          --------------------------------------
                                       Title:  Vice President

  
                                       BANQUE NATIONALE DE PARIS



                                       By:  /s/ [Signature]
                                          --------------------------------------
                                       Title:  Senior vice President & Manager

                                       By:  /s/ [Signature]
                                          --------------------------------------
                                       Title:  Vice President



<PAGE>   4
                                      -4-


                                       THE BANK OF NOVA SCOTIA



                                       By:  /s/ [Signature]
                                          --------------------------------------
                                       Title:  Relationship Manager


                                       FLEET NATIONAL BANK



                                       By:  /s/ [Signature]
                                          --------------------------------------
                                       Title:  V.P.



<PAGE>   5
                            RATIFICATION OF GUARANTY

         Each of the undersigned guarantors hereby acknowledges and consents to
the foregoing First Amendment as of June 27, 1996, and agrees that the Guaranty
dated as of April 24, 1996 from each of Selanar Corporation, Western Digital
Capital Corporation, Western Digital Europe, Western Digital Pacific Corporation
and Western Digital Rochester, Inc. (collectively, the "Guarantors") in favor of
the Agent, the Syndication Agent and each of the Banks, and all other Loan
Documents to which each of the Guarantors are a party remain in full force and
effect, and each of the Guarantors confirms and ratifies all of its obligations
thereunder.

                                       SELANAR CORPORATION


                                       By:  /s/ [Signature]
                                          --------------------------------------
                                       Title:           President


                                       WESTERN DIGITAL CAPITAL CORPORATION



                                       By:  /s/ [Signature]
                                          --------------------------------------
                                       Title:           Secretary


                                       WESTERN DIGITAL EUROPE



                                       By:  /s/ [Signature]
                                          --------------------------------------
                                       Title:           President


                                       WESTERN DIGITAL PACIFIC CORPORATION



                                       By:  /s/ [Signature]
                                          --------------------------------------
                                       Title:         Vice President


                                       WESTERN DIGITAL ROCHESTER, INC.



                                       By:  /s/ [Signature]
                                          --------------------------------------
                                       Title:        Vice President &
                                                  Chief Financial Officer



<PAGE>   1
 
                                                                      EXHIBIT 11
 
                          WESTERN DIGITAL CORPORATION
 
                       COMPUTATION OF PER SHARE EARNINGS
 
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
 

<TABLE>
<CAPTION>
                                                                         YEARS ENDED
                                                               --------------------------------
                                                                JUNE                     JUNE
                                                                 29,       JULY 1,        30,
                                                                1996         1995        1994
                                                               -------     --------     -------
<S>                                                            <C>         <C>          <C>
PRIMARY
Net income...................................................  $96,894     $123,302     $73,136
                                                               =======     ========     =======
Weighted average number of common shares outstanding during
  the period.................................................   46,279       46,082      39,341
Incremental common shares attributable to exercise of
  outstanding options, warrants and ESPP contributions.......    1,845        2,116       2,022
                                                               -------     --------     -------
Total shares.................................................   48,124       48,198      41,363
                                                               =======     ========     =======
Net income per share.........................................  $  2.01     $   2.56     $  1.77
                                                               =======     ========     =======
FULLY DILUTED
Net income...................................................  $96,894     $123,302     $73,136
Add back: interest expense, net of income tax effect
  applicable to convertible subordinated debentures..........       --        3,594       4,664
                                                               -------     --------     -------
                                                               $96,894     $126,896     $77,800
                                                               =======     ========     =======
Weighted average number of common shares outstanding during
  the period.................................................   46,279       46,082      39,341
Incremental common shares attributable to exercise of
  outstanding options, warrants and ESPP contributions.......    2,001        2,125       2,280
Incremental common shares attributable to conversion of
  convertible subordinated debentures........................       --        3,213       4,059
                                                               -------     --------     -------
Total shares.................................................   48,280       51,420      45,680
                                                               =======     ========     =======
Net income per share.........................................  $  2.01     $   2.47     $  1.70
                                                               =======     ========     =======
</TABLE>






<PAGE>   1
 
                                                                      EXHIBIT 21
 
                          WESTERN DIGITAL CORPORATION
 
                          SUBSIDIARIES OF THE COMPANY
 

<TABLE>
<CAPTION>
                           NAME                                     JURISDICTION
    ---------------------------------------------------    ------------------------------
    <S>                                                    <C>
    Western Digital Ireland, Ltd.                          Cayman Islands
    Western Digital (Malaysia) SDN BHD                     Malaysia
    Western Digital (Deutschland) GmbH                     Federal Republic of Germany
    Western Digital (France) S.a.r.1.                      France
    Western Digital Japan Ltd.                             Japan
    Western Digital (U.K.) Limited                         United Kingdom
    Western Digital Canada Corporation                     Canada
    Western Digital (Singapore) Pte Ltd                    Singapore
    Western Digital Taiwan Co., Ltd.                       Taiwan, Republic of China
    Western Digital Hong Kong Limited                      Hong Kong
    Western Digital Netherlands B.V.                       The Netherlands
    Western Digital (S.E. Asia) Pte Ltd                    Singapore
    Western Digital (I.S.) Limited                         Ireland
    Western Digital (Tuas - Singapore) Pte Ltd             Singapore
</TABLE>






<PAGE>   1
 
                                                                      EXHIBIT 23
 
                        CONSENT OF INDEPENDENT AUDITORS
 
The Board of Directors
Western Digital Corporation:
 
     We consent to the incorporation by reference in the Registration Statements
(Nos. 2-76179, 2-97365, 33-57953, 33-9853, 33-15771, 33-60166, 33-60168 and
33-51725) on Form S-8 of Western Digital Corporation of our report dated July
24, 1996, relating to the consolidated balance sheets of Western Digital
Corporation as of June 29, 1996 and July 1, 1995, and the related consolidated
statements of income, shareholders' equity and cash flows for each of the years
in the three-year period ended June 29, 1996, and the related schedule, which
report appears in the June 29, 1996 Annual Report on Form 10-K of Western
Digital Corporation.
 
                                          KPMG PEAT MARWICK LLP
 
Orange County, California
September 16, 1996





<TABLE> <S> <C>

<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) THE
CONSOLIDATED INCOME STATEMENTS AND BALANCE SHEETS OF WESTERM DIGITAL CORPORATION
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH (B) ANNUAL REPORT TO
SHAREHOLDERS FOR THE YEAR ENDED JUN 29, 1996.
</LEGEND>
<MULTIPLIER> 1,000
       
<S>                             <C>
<PERIOD-TYPE>                   YEAR
<FISCAL-YEAR-END>                          JUN-29-1996
<PERIOD-START>                             JUL-02-1995
<PERIOD-END>                               JUN-29-1996
<CASH>                                         182,565
<SECURITIES>                                    36,598
<RECEIVABLES>                                  418,849
<ALLOWANCES>                                     9,376
<INVENTORY>                                    142,622
<CURRENT-ASSETS>                               794,264
<PP&E>                                         291,748
<DEPRECIATION>                                 143,490
<TOTAL-ASSETS>                                 984,143
<CURRENT-LIABILITIES>                          514,022
<BONDS>                                              0
<PREFERRED-MANDATORY>                                0
<PREFERRED>                                          0
<COMMON>                                         4,356
<OTHER-SE>                                     449,536
<TOTAL-LIABILITY-AND-EQUITY>                   984,143
<SALES>                                      2,865,219
<TOTAL-REVENUES>                             2,865,219
<CGS>                                        2,483,155
<TOTAL-COSTS>                                2,483,155
<OTHER-EXPENSES>                               304,609
<LOSS-PROVISION>                                 1,279
<INTEREST-EXPENSE>                              13,134
<INCOME-PRETAX>                                107,864
<INCOME-TAX>                                    10,970
<INCOME-CONTINUING>                             96,894
<DISCONTINUED>                                       0
<EXTRAORDINARY>                                      0
<CHANGES>                                            0
<NET-INCOME>                                    96,894
<EPS-PRIMARY>                                     2.01
<EPS-DILUTED>                                     2.01
        

</TABLE>