LOAN AND SECURITY AGREEMENT



                         BANKBOSTON RETAIL FINANCE INC.

                                      AGENT

                                       AND

                      BANCBOSTON ROBERTSON STEPHENS, INC.,

                                SYNDICATION AGENT

                        FOR THE LENDERS REFERENCED HEREIN



                                 LECHTERS, INC.,

                                  LEAD BORROWER

                       FOR THE BORROWERS REFERENCED HEREIN




                                NOVEMBER 30, 1999

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                                TABLE OF CONTENTS


ARTICLE I-DEFINITIONS..........................................................1

ARTICLE II-THE REVOLVING CREDIT...............................................33
   2.1    Establishment of  Revolving Credit..................................33
   2.2    Advances in Excess of Borrowing Base................................34
   2.3    Risks of Value of Collateral........................................35
   2.4    Loan Requests.......................................................35
   2.5    Making of Loans Under Revolving Credit..............................37
   2.6    SwingLine Loans.....................................................38
   2.7    The Loan Account....................................................38
   2.8    The Revolving Credit Notes..........................................40
   2.9    Payment of The Loan Account.........................................40
   2.10   Interest Rates......................................................41
   2.11   Agent's Fee.........................................................43
   2.12   Underwriting Fee....................................................43
   2.13   Line (Unused) Fee...................................................43
   2.14   Early Termination Fee...............................................43
   2.15   Concerning Fees.....................................................44
   2.16   Agent's and Lenders' Discretion.....................................44
   2.17   Procedures For Issuance of L/C's....................................45
   2.18   Fees For L/C's......................................................46
   2.19   Concerning L/C's....................................................47
   2.20   Changed Circumstances...............................................49
   2.21   Increased Costs/Taxes...............................................51
   2.22   Lenders' Commitments................................................53
   2.23.  Concerning Joint and Several Liability of the Borrowers.............54
   2.24.  Lechters, Inc. as Lead Borrower.....................................58

ARTICLE III-CONDITIONS PRECEDENT..............................................58
   3.1.   Corporate Due Diligence.............................................59
   3.2.   Opinion.............................................................59
   3.3.   Additional Documents................................................59
   3.4.   Officers' Certificates..............................................60
   3.5.   Representations and Warranties......................................60
   3.6.   Minimum Excess Availability.........................................60
   3.7.   All Fees and Expenses Paid..........................................60
   3.8.   No Event of Default.................................................60
   3.9.   No Adverse Change...................................................60

3.10.     DELIVERY OF NOTICES.................................................61

ARTICLE IV-GENERAL REPRESENTATIONS, COVENANTS AND WARRANTIES..................61
   4.1.   Payment and Performance of Liabilities..............................61
   4.2.   Due Organization -Corporate Authorization -No Conflicts.............61
   4.3.   Trade Names.........................................................63
   4.4.   Infrastructure......................................................63
   4.5.   Year 2000 Compliance................................................64
   4.6.   Locations...........................................................64
   4.7.   Title to Assets.....................................................66
   4.8.   Indebtedness........................................................67
   4.9    Repayment of 5.00% Notes............................................68
   4.10.  Insurance Policies..................................................68
   4.11.  Licenses............................................................69
   4.12.  Leases..............................................................69
   4.13.  Requirements of Law.................................................70
   4.14.  Maintain Collateral.................................................70
   4.15.  Pay Taxes...........................................................71
   4.16.  No Margin Stock.....................................................72
   4.17.  ERISA...............................................................73
   4.18.  Hazardous Materials.................................................73
   4.19.  Litigation..........................................................74
   4.20.  Dividends, Investments, Repurchases and Debt Retirement.............74
   4.21.  Loans...............................................................77
   4.22.  Protection of Assets................................................78
   4.23.  Line of Business....................................................78
   4.24.  Affiliate Transactions..............................................78
   4.25.  Additional Assurances...............................................78
   4.26.  Adequacy of Disclosure..............................................79
   4.27   No Restrictions on Liabilities......................................80
   4.28   Other Covenants.....................................................80

ARTICLE V-FINANCIAL REPORTING AND PERFORMANCE COVENANTS.......................80
   5.1.   Maintain Records....................................................81
   5.2.   Access to Records...................................................81
   5.3.   Immediate Notice to Agent...........................................82
   5.4.   Borrowing Base Certificate..........................................84
   5.5.   Monthly Collateral Reports..........................................84
   5.6.   Monthly Financial Reports...........................................84
   5.7.   Quarterly Financial Reports.........................................85
   5.8    Annual Reports......................................................85
   5.9.   Officers' Certificates..............................................85
   5.10.  Inventories, Appraisals, and Audits.................................86
   5.11.  Additional Financial Information....................................87
   5.12.  Financial Performance Covenants.....................................87

ARTICLE VI-USE AND COLLECTION OF COLLATERAL...................................88
   6.1.   Use of Inventory Collateral.........................................88
   6.2.   Inventory Quality...................................................89
   6.3.   Adjustments and Allowances..........................................89
   6.4.   Validity of Accounts................................................89
   6.5.   Notification to Account Debtors.....................................89

ARTICLE VII-CASH MANAGEMENT; PAYMENT OF LIABILITIES...........................89
   7.1.   Depository Accounts.................................................89
   7.2.   Credit Card Receipts................................................90
   7.3.   The Concentration, Blocked, and Operating Accounts..................91
   7.4.   Proceeds and Collection of Accounts.................................91
   7.5.   Payment of Liabilities..............................................93
   7.6.   The Operating Account...............................................94

ARTICLE VIII-GRANT OF SECURITY INTEREST.......................................94
   8.1.   Grant of Security Interest..........................................94
   8.2.   Extent and Duration of Security Interest............................95

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ARTICLE IX-AGENT AS BORROWERS' ATTORNEY-IN-FACT...............................95
   9.1.   Appointment as Attorney-In-Fact.....................................95
   9.2.   No Obligation to Act................................................96

ARTICLE X-EVENTS OF DEFAULT...................................................97
   10.1.  Failure to Pay Revolving Credit.....................................97
   10.2.  Failure To Make Other Payments......................................97
   10.3.  Failure to Perform Covenant or Liability (No Grace Period)..........97
   10.4.  Failure to Perform Covenant or Liability (Grace Period).............98
   10.5.  Misrepresentation...................................................98
   10.6.  Acceleration of Other Debt; Breach of Lease.........................98
   10.7.  Default Under Other Agreements......................................99
   10.8.  Uninsured Casualty Loss.............................................99
   10.9.  Judgment.  Restraint of Business....................................99
   10.10. Business Failure....................................................99
   10.11. Bankruptcy.........................................................100
   10.12. Indictment; Forfeiture.............................................100
   10.13  Foreign Proceeding.................................................101
   10.14. Challenge to Loan Documents........................................101
   10.15.  CHANGE IN CONTROL............... .................................101

ARTICLE XI-RIGHTS AND REMEDIES UPON DEFAULT..................................101
   11.1.  Rights of Enforcement..............................................102
   11.2.  Sale of Collateral.................................................102
   11.3.  Occupation of Business Location....................................103
   11.4.  Grant of Nonexclusive License......................................104
   11.5.  Assembly of Collateral.............................................104
   11.6.  Rights and Remedies................................................104

ARTICLE XII-NOTICES..........................................................105
   12.1.  Notice Addresses...................................................105
   12.2.  Notice Given.......................................................105

ARTICLE XIII-REVOLVING CREDIT FUNDINGS AND DISTRIBUTIONS.....................106
   13.1.  Revolving Credit Funding Procedures................................106
   13.2   SwingLine Loans....................................................106
   13.3   Agent's Covering of Fundings.......................................107
   13.4   Ordinary Course Distributions:  Revolving Credit...................109

ARTICLE XIV-TERM.............................................................111
   14.1   Acceleration Notices...............................................111
   14.2   Acceleration.......................................................111
   14.3   Initiation of Liquidation..........................................111
   14.4   Actions At and Following Initiation of Liquidation.................111
   14.5   Agent's Conduct of Liquidation.....................................112
   14.6   Distribution of Liquidation Proceeds...............................112
   14.7   Relative Priorities To Proceeds of Liquidation.....................113

<PAGE>

ARTICLE XV-THE AGENT.........................................................113
   15.1   Appointment of Agent...............................................113
   15.2   Responsibilities of Agent..........................................114
   15.3   Concerning Distributions By the Agent..............................115
   15.4   Dispute Resolution.................................................116
   15.5   Distributions of Notices and of Documents..........................116
   15.6   Confidential Information...........................................117
   15.7   Reliance by Agent..................................................117
   15.8   Non-Reliance on Agent and Other Lenders............................117
   15.9   Indemnification....................................................118
   15.10  Resignations of Agent..............................................119
   ARTICLE XVI-ACTION BY AGENT; CONSENTS; AMENDMENTS; WAIVERS................120
   16.1   Administration of Credit Facilities................................120
   16.2   Actions Requiring Consent or Direction of Majority Lenders.........121
   16.3   Actions Requiring Consent or Direction of SuperMajority Lenders....121
   16.4   Intentionally Deleted..............................................121
   16.5   Actions Requiring or Directed By Unanimous Consent.................121
   16.6   Actions Requiring SwingLine Lender Consent.........................123
   16.7   Actions Requiring Agent's Consent..................................123
   16.8   Miscellaneous Actions..............................................123
   16.9   Nonconsenting Lenders..............................................124

ARTICLE XVII ASSIGNMENTS AND PARTICIPATIONS..................................125
   17.1   Assignments and Assumptions........................................125
   17.2   Participations.....................................................127
   17.3   Pledges To Federal Reserve Banks...................................128

ARTICLE XVIII-TERM...........................................................128
   18.1.  Termination of Revolving Credit....................................128
   18.2.  Effect of Termination..............................................128

ARTICLE XIX-GENERAL..........................................................128
   19.1.  Protection of Collateral...........................................128
   19.2.  Successors and Assigns.............................................129
   19.3.  Severability.......................................................129
   19.4.  Amendments; Course of Dealing......................................129
   19.5.  Power of Attorney..................................................130
   19.6.  Application of Proceeds............................................131
   19.7.  Costs and Expenses of Agent and Of Lenders.........................131
   19.8.  Copies and Facsimiles..............................................132
   19.9   New York Law.......................................................132
   19.10. Consent to Jurisdiction............................................132
   19.11  Indemnification....................................................133
   19.12  Rules of Construction..............................................134
   19.13. Intent.............................................................135
   19.14. Right of Set-Off...................................................136
   19.15. Maximum Interest Rate..............................................136
   19.16. Waivers............................................................136

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                                    EXHIBITS

A .............................. Schedule of Borrowers
B .............................. Schedule of Lenders' Commitments
1 ...............................Additional Uses for Local Disbursement Accounts
2.4(b) ..........................Notice of Loan Request Form
2.6(c) ..........................SwingLine Note
2.8 .............................Revolving Credit Note
3.3 .............................Form of Pledge Agreement
4.2 .............................Related Entities
4.3 .............................Trade Names
4.5 .............................Year 2000 Compliance
4.6(a) ..........................Locations, Leases, and Landlords
4.6(c)(1) .......................Form of Landlord Waiver
4.6(c)(2) .......................Locations Requiring Landlord Waivers
4.7 .............................Encumbrances
4.8 .............................Indebtedness
4.10 ............................Insurance Policies
4.12 ............................Capital Leases
4.15 ............................Taxes
4.19 ............................Litigation
5.4 .............................Borrowing Base Certificate
5.5 .............................Monthly Collateral Reports
5.11(c) .........................Business Plan
7.1 .............................DDA's.
7.2 .............................Credit Card Arrangements
7.3(a)(ii) ......................Blocked Accounts
7.4(b)(i) .......................DDA Accounts; Minimum Required Balances
17.1 ............................Form Assignment and Acceptance

<PAGE>

LOAN AND SECURITY  AGREEMENT                      BANKBOSTON RETAIL FINANCE INC.
                                                  AGENT


                                                               November 30, 1999



        THIS AGREEMENT is made among

               BANKBOSTON  RETAIL FINANCE INC.,  (in such  capacity,  herein the
"AGENT")  a  Delaware  corporation  with  offices  at 40 Broad  Street,  Boston,
Massachusetts  02109,  as agent for the benefit of the "Lenders",  on a Pro Rata
basis,  based upon each  Lender's  Commitment  Percentage,  who are, at present,
those financial institutions identified on the signature pages of this Agreement
and who in the future shall include those Persons (if any) who become  "LENDERS"
in accordance with the provisions of Section 2.22(c) below;

               BANCBOSTON ROBERTSON STEPHENS, INC., a Massachusetts  corporation
with offices at 100 Federal Street, Boston,  Massachusetts 02110 in its capacity
as syndication agent for the Lenders;

               Each of the corporations described on Exhibit A of this Agreement
(collectively  the  "Borrowers"  and except in the case of Lechters,  Inc.,  the
"Subsidiaries",  and each  individually,  a "BORROWER" and except in the case of
Lechters,  Inc.,  a  "Subsidiary"),  each of which has its  principal  executive
offices at One Cape May Street, Harrison, NJ 07029;

               and

               LECHTERS,  INC.,  a New  Jersey  corporation  with its  principal
executive offices at One Cape May Street,  Harrison, New Jersey 07029 (the "LEAD
BORROWER" and the "PARENT", as well as a "Borrower")

     in consideration  of the mutual covenants  contained herein and benefits to
be derived herefrom,


                                   WITNESSETH:
ARTICLE I - DEFINITIONS:

        As herein used, the following  terms have the following  meanings or are
defined in the section of this Agreement so indicated:

                                     - 1 -
<PAGE>

     "5.00% NOTES": The Parent's 5.00% Convertible  Subordinated  Debentures due
September 27, 2001.

        "ACCELERATION":      With respect  to any indebtedness, its becoming due
               and payable prior to its stated maturity. Derivations of the word
               "Acceleration" (such as "Accelerate") are  used with like meaning
               in this Agreement.

        "ACCELERATION NOTICE":    Written notice from the SuperMajority Lenders,
               as provided in Section 14.1.  The  Agent shall  provide copies of
               any Acceleration notice to each Lender.

        "ACCEPTABLE CASH COLLATERAL":   Cash or any Permitted Investment held by
               BankBoston, N.A.  in a  restricted  cash  collateral, treasury or
               securities account, as appropriate.

        "ACCEPTABLE CREDIT CARD  RECEIVABLES":   Those  Accounts that  from time
               to time are due and  owing to each  Borrower  on  a  non-recourse
               basis from major credit card  processors  that are  acceptable to
               the Agent, which processors include,  without  limitation,  Visa,
               MasterCard, Discover and American Express.

        "ACCEPTABLE  IN-TRANSIT  INVENTORY":  That  portion  of  the  Borrowers'
               Inventory  (without  duplication as to Acceptable L/C Inventory),
               title   to   which    has    passed    to    a    Borrower    and
               which    has    been  shipped    from    a    foreign    location
               to    one  of  the     Borrowers'   warehouses    provided   that
               (a)    Such    Inventory   is    of    such   types,   character,
               qualities and  quantities as the Agent in its   discretion   from
               time  to  time  determines   to  be Acceptable  Inventory;
               (b)    The documents which relate to such shipment name the Agent
               as consignee of the subject inventory and the Agent has   control
               over  the  documents

                                     - 2 -
<PAGE>

               which evidence  ownership of the subject  Inventory (such  as  by
               providing a Customs Brokers Agreement to the Agent); and
               (c)    Such Inventory  has  not  yet  been  delivered  to  one of
               Borrowers'  warehouses  and  has  been  in    transit  from   the
               applicable foreign location for no more than 45 calendar days.

        "ACCEPTABLE INVENTORY":        Such of the Borrowers' Inventory, at such
               locations,   and  of  such  types,   character,   qualities   and
               quantities, as the Agent in its sole discretion from time to time
               determines  to  be  acceptable   Collateral  for  Borrowing  Base
               purposes,  including  Acceptable  L/C  Inventory  and  Acceptable
               In-Transit  Inventory,  as to which  the  Agent  has a  perfected
               security  interest  that is prior and  superior to all claims and
               Encumbrances (other than Permitted  Encumbrances,  subject to the
               Agent's right to establish Reserves  therefor).  Without limiting
               the foregoing,  "Acceptable Inventory" shall not include: (i) any
               non-merchandise  Inventory  (such as labels,  bags and purchasing
               materials) and (ii) damaged goods,  return to vendor merchandise,
               packages, consigned inventory and other similar categories.

        "ACCEPTABLE L/C INVENTORY":     That portion of the Borrower's Inventory
               (without duplication as to Acceptable In-Transit  Inventory), the
               purchase of which is supported  by  a documentary L/C then having
               an expiry within sixty (60) days, provided that
                      (a)        Such  Inventory  is of such  types,  character,
               qualities and quantities as the Agent in its discretion from time
               to time determines to be Acceptable Inventory; and
                      (b)      The  documentary  L/C  supporting  such  purchase
               names the Agent as  consignee  of the subject  Inventory  and the
               Agent has control over the documents which evidence  ownership of
               the subject  Inventory  (such as by  providing a Customs  Brokers
               Agreement to the Agent).

                                     - 3 -
<PAGE>

        "ACCOUNTS"  and   "ACCOUNTS   RECEIVABLE"             include,   without
               limitation,  "accounts"  as  defined  in the UCC,  and also  all:
               accounts,  accounts receivable,  credit card receivables,  notes,
               drafts,   acceptances,   and  other  forms  of  obligations   and
               receivables  and rights to payment  for credit  extended  and for
               goods sold or leased,  or services  rendered,  whether or not yet
               earned by performance;  all "contract rights" as formerly defined
               in the UCC; all Inventory which gave rise thereto, and all rights
               associated with such  Inventory,  including the right of stoppage
               in transit; and all reclaimed,  returned, rejected or repossessed
               Inventory (if any) the sale of which gave rise to any Account.

        "ACH": Automated clearing house.

        "ACCOUNT DEBTOR":   Has the meaning given that term in the UCC.

        "AFFILIATE":  With respect to any two Persons,  a relationship  in which
               (a) one holds, directly or indirectly,  not less than Twenty Five
               Percent  (25%)  of  the  capital  stock,   beneficial  interests,
               partnership interests, or other equity interests of the other; or
               (b) one has,  directly or indirectly,  the right,  under ordinary
               circumstances,  to elect a majority  of the  directors  (or other
               body or Person who has those powers customarily vested in a board
               of  directors  of a  corporation);  or (c) the same third  Person
               holds, directly or indirectly,  not less than Twenty Five percent
               (25%) of their respective  capital stock,  beneficial  interests,
               partnership interests or other equity interests;  or has directly
               or  indirectly  the right to elect the  majority of  directors of
               both such parties..

        "AGENT":     Defined in the Preamble.

        "AGENT'S COVER":     The amount  which  the Agent makes available to the
               Borrowers, as provided in Section 13.3(c)(i), below, on behalf of
               a  Lender  that was obligated to provide such amount to the Agent
               in accordance with this Agreement.

                                     - 4 -
<PAGE>

        "AGENT'S FEE":Defined in Section 2.11.

        "AGENT'S RIGHTS AND REMEDIES":      Defined in Section 11.6.

        "ASSIGNING LENDER":  Defined in Section 17.1(a).

        "ASSIGNMENT AND ACCEPTANCE":Defined in Section 17.1(b).

        "AVAILABILITY":      Defined in Section 2.1(b)(i).

        "AVAILABILITY  RESERVES":       Such  reserves as the Agent from time to
               time determines in the Agent's discretion as being appropriate to
               reflect the  impediments  to the Agent's  ability to realize upon
               the Collateral. Without limiting the generality of the foregoing,
               Availability  Reserves  may  include  (but  are not  limited  to)
               reserves based on the following:

                      (i)   Rent for (x) up to  three  (3)  months (based on the
                            "base" rent under  the  applicable  lease)  for  any
                            Borrower location in a Landlord State  for  which  a
                            landlord's    waiver   or   subordination   (in form
                            acceptable  to  the  Agent) has not been provided to
                            the Agent; (y)  any location for which  rent is past
                            due, any grace  period has passed and  a  notice  of
                            rent  default   has  been received by  the Borrower,
                            provided, that  such reserves shall not  exceed  the
                            amount of rent  that is past due for said  location;
                            and  (z)  any   location  at   any  time  upon   the
                            occurrence  and  continuance of an Event of Default.
                      (ii)  In-store  customer credits, which shall initially be
                            50% of   that  amount  reflected  on the  Borrowers'
                            Consolidated general ledger.
                      (iii) Gift  Certificates,  which shall initially be 50% of
                            that   amount  reflected  as such on the  Borrowers'
                            Consolidated general ledger.

                                     - 5 -
<PAGE>

                      (iv)  Frequent  Shopper  Programs , which shall  initially
                            be zero.
                      (v)   Layaways   and  Customer   Deposits,   which   shall
                            initially  be zero.
                      (vi)  Taxes  and  other governmental charges  as estimated
                            or calculated   by   the   Agent   with   reasonable
                            particularity  and   notice  to the Lead  Borrower),
                            including ad valorem, personal property,   and other
                            taxes which will have  priority   over the  security
                            interests of the Agent   in  the  Collateral,  which
                            initially shall be zero.
                      (vii) L/C Landing Costs.
                      (viii)Year  2000  compliance  based   upon  a  good  faith
                            estimate  by the  Agent  of  the  impairment  to the
                            Collateral by reason of the  failure of the Borrower
                            to be  substantially  Year   2000  Compliant,  which
                            initially  shall be zero.
                      (ix)  Payables   (based upon  payables  which are past the
                            Borrowers' normal trade terms).

        "BANKRUPTCY CODE":  Title 11 U.S.C., as amended from time to time.

        "BBRF":        BankBoston Retail Finance Inc. and any successor thereof.

        "BASE":    The Base Rate announced from time to time by BankBoston, N.A.
               (or any successor in  interest to BankBoston, N.A.). In the event
               that  said bank (or any such successor) ceases to announce such a
               rate, "Base"  shall  refer  to  that  rate or index  announced or
               published  from  time  to  time  as  the  Agent,  in  good faith,
               designates as the   functional  equivalent to said Base Rate. Any
               change  in  Base  shall  be  effective,  for   purposes  of   the
               calculation  of interest due hereunder,  when such change is made
               effective  generally   by   the  bank on the basis of  whose rate
               or index  Base is being  set.  In   all events,  interest that is
               determined by reference to Base (or any  successor to Base) shall
               be calculated on a 360 day year and actual days elapsed.

                                     - 6 -
<PAGE>

        "BASE  MARGIN":Until a Base rate pricing adjustment  pursuant to Section
               2.10(e) is applicable: zero (0) percent; thereafter as determined
               pursuant to the applicable section of the Margin Pricing Grid set
               forth in Section 2.10(e).

        "BASE MARGIN LOAN": Each Revolving Credit Loan while bearing interest at
               the Base Margin Rate.

        "BASE MARGIN RATE ":  The  aggregate  of  Base  plus the Base Margin per
               annum.

        "BLOCKED ACCOUNT":  A DDA that conforms with the requirements of Section
               7.1(b)(i), and initially as specified in Section 7.3(a)(ii).

        "BLOCKED ACCOUNT  AGREEMENT":A  tri-party agreement in a form acceptable
               to the Agent, among the Lead Borrower, the Agent and a depository
               institution  at which  the Lead  Borrower  maintains  one or more
               DDAs,  providing  for the Agent's  dominion and control over such
               DDAs upon notice by the Agent to such  depository  institution of
               the occurrence of a Cash Management Condition.

        "BORROWER":   Defined in the Preamble.

        "BORROWING BASE":    Defined in Section 2.1(b)(ii).

        "BUSINESS DAY":         Any day (with any  references  herein to time of
               day requirements  meaning such times based on Eastern time) other
               than (a) a  Saturday  or  Sunday;  (b) any day on which  banks in
               Boston,  Massachusetts  generally  are not  open  to the  general
               public for the purpose of conducting commercial banking business;
               or (c) a day on which the Agent is not open to the general public
               to conduct business.

                                     - 7 -
<PAGE>

        "BUSINESS PLAN":     The  Borrowers'  business  plan  annexed  hereto as
               EXHIBIT 5.11(c) and  any  revision,  amendment, or update of such
               business plan, provided such  revision,  amendment or  update has
               been accepted in writing by the Agent.

        "CAPITAL EXPENDITURES":    The expenditure of funds or the incurrence of
               liabilities   for   leaseholds,   leasehold  improvements,   real
               property,   furniture   and   equipment,   to  the  extent   such
               expenditures must be capitalized in accordance with GAAP, and net
               of amounts reimbursed by Landlords.

        "CAPITAL EXPENDITURE CAP":  Defined in Section 5.12(b).

        "CAPITAL LEASE":     Any lease  which  must be capitalized in accordance
               with GAAP.

        "CASH MANAGEMENT CONDITION":Either (or both) of the following:
                      (a)   A  Suspension  Event  has occurred and is continuing
               and the Agent has elected to notify the Lead Borrower that a Cash
               Management Condition has occurred.
                      (b)   Availability  shall    have  been    less   than $15
               Million  for a period of three (3) or more  consecutive  Business
               Days.

        "CHANGE IN CONTROL": The occurrence of any of the following:
                      (a)   The  acquisition,  by  any  group of persons (within
               the meaning of the  Securities  Exchange Act of 1934, as amended)
               or by any Person (other than any shareholder currently holding or
               controlling  20% or more of the  issued and  outstanding  capital
               stock  of the  Parent,  and any  members  of  such  shareholder's
               immediate   family,  or  any  trust or  other entity  established
               by  such  shareholder or  shareholder's  family member or members
               for  estate   or   tax   planning   purposes  or   any  group  of
               Persons  of   which  such  shareholder's  family  members,  trust
               or other   entity has a   controlling  interest)  of   beneficial
               ownership (within   the  meaning  of  Rule  13d-3  of   the  SEC)
               of  50%   or   more   of the  issued  and    outstanding  capital

                                     - 8 -
<PAGE>

               stock of the Parent having the right,  under
               ordinary circumstances,  to vote for the election of directors of
               the Parent.
                      (b)   More  than  half  of the persons who were  directors
               of the Parent on the first day of any period consisting of Twelve
               (12)  consecutive  calendar months (the first of such Twelve (12)
               month periods commencing with the first day of the month in which
               this  Agreement  was  executed)  cease (for any reason other than
               death,  disability or  retirement) to be directors of the Parent,
               and the  board of  directors  as  thereafter  constituted  is not
               acceptable to Agent.

        "CHATTEL PAPER":     Has the meaning given that term in the UCC.

        "COLLATERAL": Defined in Section 8.1.

        "COLLATERAL REPORTS":Defined in Section 5.5.

        "COMMITMENT" Subject to Section  16.1(d) (which provides for Permissible
               Overloans)  with respect to each Lender,  such  Lender's  "DOLLAR
               COMMITMENT" and "COMMITMENT  PERCENTAGE" as set forth on Schedule
               B to this Agreement or assigned to such Lender in accordance with
               Section 17.1 (which  provides for  Assignments  and Assumption of
               Commitments),  and  "Commitment"  shall,  collectively,  mean the
               aggregate  amount of the Dollar  Commitments of all Lenders,  the
               maximum amount of which shall not exceed $120,000,000.00.

        "CONCENTRATION  ACCOUNT":       The deposit  account  established by the
               Agent over which the Agent has sole dominion and control and into
               which,  following the occurrence of a Cash Management  Condition,
               all contents of the Blocked  Accounts  shall be  transferred on a
               daily  basis,  as  provided  in  Sections  7.3  and  7.4 of  this
               Agreement.

        "CONSENT":    Actual     consent    given   by    the    Lender     from
               whom    such  consent   is    sought;   or   the    passage    of
               seven (7) Business Days from  the receipt by  a Lender of written

                                     - 9 -
<PAGE>

               notice   from  the  Agent  of  a  proposed course of action to be
               followed  by  the  Agent  without  the  Agent  having    received
               from such Lender  written  notice of that  Lender's  objection to
               such course of action,  provided  that the Agent may rely on such
               passage  of time as  consent  by  a  Lender  only  if the Agent's
               notice  specifically states that consent will  be  deemed to have
               been given if no objection  is received  within such time period.

        "CONSOLIDATED":   When used to modify a financial term, test, statement,
               or report,   refers to  the  application  or  preparation of such
               term, test,  statement, or  report  (as  applicable)  based  upon
               the   consolidation,    in   accordance    with   GAAP,  of   the
               financial condition or  operating  results  of  the  corporations
               which constitute the Parent and its Subsidiaries.

        "COST":The lower of
                      (a)   the  calculated  cost  of  Inventory  purchases,  as
               determined from invoices  received by the Borrowers and reflected
               in the Borrowers'  Consolidated purchase journal or stock ledger,
               based upon the Borrowers'  accounting  practices in effect on the
               date on which this Agreement was executed; and
                      (b)   the  cost   equivalent  of  the lowest  ticketed  or
               promoted  price at which the subject  Inventory is offered to the
               public,  after all mark-downs  (whether or not such price is then
               reflected on the  Borrowers'  accounting  system),  determined in
               accordance  with the retail method of accounting  and  reflecting
               the Borrowers' historic business practices.
        "Cost"  does  not  include  inventory   capitalization  costs  or  other
        non-purchase  price  charges  (such as  outbound  freight  to the  store
        location) used in the Borrowers' calculation of cost of goods sold.

        "COSTS OF  COLLECTION":   Includes,  without limitation,  all reasonable
               fees     and    reasonable   out-of-pocket   expenses    of   the
               Agent's   attorneys,   and      all    reasonable   out-of-pocket
               costs incurred  by   the   Agent including,  without  limitation,

                                     - 10 -
<PAGE>

               reasonable   out-of-pocket   costs   and   expenses    associated
               with travel on behalf  of the Agent, which costs and expenses are
               directly   or   indirectly  related  to   or  in  respect  of the
               Agent's:  administration  and   management  of  the  Liabilities;
               negotiation,   documentation, interpretation and amendment of any
               Loan Document;  or efforts to   preserve,  protect,  collect,  or
               enforce  the  Collateral,  the  Liabilities,  and/or  any  of the
               Agent's   rights   and   remedies  against  or  in respect of any
               guarantor  or   other  person   liable   in    respect   of   the
               Liabilities  (whether or not suit is  instituted  in   connection
               with such  efforts).  Following the occurrence of any   Event  of
               Default,  "Costs  of  Collection"  also  includes  all reasonable
               fees and reasonable  out-of-pocket expenses  of counsel   for the
               Lenders it  being  understood  that Costs  of Collection  for the
               Lenders  shall  be  limited  to the  reasonable  fees of a single
               counsel for all Lenders.

        "CREDIT CARD ADVANCE RATE": Eighty percent (80%).

        "CUSTOMS BROKERS  AGREEMENT":A  tri-party agreement in form satisfactory
               to the Agent, among the Lead Borrower or any Borrower,  a customs
               broker and the Agent,  in which the customs  broker  acknowledges
               that  the  Agent  has  control  over  the  documents   evidencing
               ownership of the subject  Inventory and agrees,  upon notice from
               the Agent, to hold and dispose of the subject Inventory solely as
               directed by the Agent.

        "DDA": Any checking or other demand deposit account maintained by any of
               the Borrowers, other than a Local Disbursement Account.

        "DELINQUENT LENDER": Defined in Section 13.3(c).

        "DEPOSIT ACCOUNT":   Has the meaning given that term in the UCC.

        "DOCUMENTS":         Has the meaning given that term in the UCC.

                                     - 11 -
<PAGE>

        "DOCUMENTS OF TITLE":Has the meaning  given that  term  in Section 1-201
               (15) of the UCC.

        "DOLLAR COMMITMENT":  As  set  forth  in the  definition of "Commitment"
               above.

        "EARLY TERMINATION FEE":    Defined in Section 2.14.

        "EBITDA":         The  Borrowers'   Consolidated   earnings   (excluding
               extraordinary  gains and gains from the sale of assets other than
               in the  ordinary  course of  business)  before  interest,  taxes,
               depreciation,  amortization and other non-cash  charges,  each as
               determined in accordance with GAAP.

        "ELIGIBLE ASSIGNEE":       A bank, insurance company, or company engaged
               in the business  of  making  commercial  loans  having a combined
               capital  and  surplus  in  excess  of  $300,000,000.00,  or   any
               Affiliate of any Lender.

        "EMPLOYEE BENEFIT PLAN":    As defined in ERISA.

        "ENCUMBRANCE":      Any of the following:
                      (a)   Any   security     interest,    mortgage,    pledge,
               hypothecation, lien, attachment, or charge of any kind (including
               any agreement to grant any of the  foregoing);  the interest of a
               lessor under a Capital Lease;  a conditional  sale or other title
               retention  agreement;  a sale of accounts  receivable  or chattel
               paper; or any other  arrangement  pursuant to which any Person is
               entitled  to any  preference  or  priority  with  respect  to the
               property,  assets,  income or profits of another  Person or which
               constitutes  an interest  in  property  to secure an  obligation,
               regardless  of whether  consensual or  non-consensual  or whether
               arising by way of agreement,  operation of law,  legal process or
               otherwise.

                                     - 12 -
<PAGE>
                      (b)   The filing of  any  financing  statement  under  the
               UCC or comparable law of any jurisdiction.

        "END   DATE":  The date upon  which both (a) all  Liabilities  have been
               paid in full and (b) all obligations of all Lenders to make loans
               and advances and to provide other financial accommodations to the
               Borrowers hereunder shall have been irrevocably terminated.

        "ENVIRONMENTAL LAWS":All of the following:
                      (a)   Any  and  all   federal,  state,  local or municipal
               laws, rules, orders, regulations,  statutes,  ordinances,  codes,
               decrees or  requirements  which  regulate or relate to, or impose
               any  standard of conduct or liability on account of or in respect
               to   environmental   protection   matters,   including,   without
               limitation,  Hazardous  Materials,  as are  now or  hereafter  in
               effect.
                      (b)   The  common  law   relating  to damage to Persons or
               property from Hazardous Materials.

        "EQUIPMENT":             Includes,  without  limitation,  "equipment" as
               defined in the UCC, and also all motor  vehicles,  rolling stock,
               machinery, office equipment, plant equipment, tools, dies, molds,
               store fixtures,  furniture,  and other tangible goods,  property,
               and assets  which are used and/or were  purchased  for use in the
               operation or furtherance of the Borrowers' business,  and any and
               all accessions or additions thereto, and substitutions therefor.

        "ERISA":The Employee Retirement Income Security Act of 1974, as amended.

        "ERISA AFFILIATE":  Any Person that is (i) under common control with the
               Borrowers  within the meaning of Section 4001 of ERISA or (ii) is
               part of a group  including  the  Borrowers or the Parent and that
               would be treated as a single employer under Section 414(b) or (c)
               of the Internal Revenue Code of 1986, as amended.

                                     - 13 -
<PAGE>

        "EURODOLLAR BUSINESS DAY":       Any day that is both a Business Day and
               a day  on  which  the  principal  market in Eurodollars  in which
               BankBoston,  N.A.  or  its  successors  participate  is  open for
               dealings in United States Dollar deposits.

        "EURODOLLAR LOAN":       Any Revolving Credit Loan bearing interest at a
               Eurodollar Rate.

        "EURODOLLAR MARGIN":  Until a Eurodollar  pricing adjustment pursuant to
               Section   2.10(e) is applicable:  175 basis points; thereafter as
               determined  pursuant  to  the  applicable  section  of the Margin
               Pricing Grid.

        "EURODOLLAR OFFER RATE":       With respect to any Eurodollar  Loan, the
               rate of interest  (rounded  upwards,  if  necessary,  to the next
               1/100 of 1%) determined by the Agent to be the highest prevailing
               rate per annum at which  deposits in U.S.  Dollars are offered to
               BankBoston,  N.A., by first-class  banks in the Eurodollar market
               in which  BankBoston,  N.A.  participates,  at or about  10:00 AM
               (Boston Time) two (2)  Eurodollar  Business Days before the first
               day of the  Interest  Period  for  such  Eurodollar  Loan,  for a
               deposit in approximately  the amount of such Eurodollar Loan, for
               a period of time approximately equal to such Interest Period.

        "EURODOLLAR RATE": The rate per annum  (calculated on a 360 day year and
               actual days elapsed) equal to the Eurodollar  Offer Rate plus the
               Eurodollar  Margin  provided  that,  in  the  event  that  it  is
               determined  by the Agent  that any  Lender  may be subject to the
               Reserve  Percentage,  the  "Eurodollar  Rate"  shall  mean,  with
               respect to any Eurodollar Loans then  outstanding  (from the date
               on which that Reserve  Percentage first became applicable to such
               Eurodollar  Loans),  and with  respect  to all  Eurodollar  Loans
               thereafter  made for as long as the Reserve  Percentage  shall be
               applicable  to a Lender,  an interest rate per annum equal to the
               sum of (a) plus (b), where:
                        (a) is the decimal equivalent of the following fraction:

                                     - 14 -
<PAGE>

                              Eurodollar Offer Rate
                           1 minus Reserve Percentage
                        (b) is the applicable Eurodollar Margin.

        "EVENTSOF DEFAULT":  Defined in Article 10. Each reference  herein to an
               "Event of  Default" is to an Event of Default  that has  occurred
               and is  continuing  and has not been duly waived by the requisite
               Lenders or by the Agent,  as applicable  (as to which due waiver,
               see Section 16.2 through 16.7).  In the event of such due waiver,
               the  so-called  Event of  Default  shall be deemed  never to have
               occurred  (other than with respect to any Costs of Collection for
               which the  Borrowers  are obligated to reimburse the Agent or the
               Lenders, unless such reimbursement  obligation has also been duly
               waived).

        "FIXTURES":   Has the meaning given that term in the UCC.

        "GAAP":Principles which are consistent with those promulgated or adopted
               by the Financial  Accounting Standards Board and its predecessors
               (or successors) in effect and applicable to the accounting period
               in respect of which  reference  to GAAP is being made,  provided,
               however,  that in the  event  of a  Material  Accounting  Change,
               unless otherwise  specifically agreed to by the Lenders,  (a) the
               Lead  Borrower's   compliance  with  the  financial   performance
               covenant  imposed pursuant to Section 5.12 hereof (if applicable)
               shall be determined as if such Material Accounting Change had not
               taken place and (b) the Lead  Borrower  shall  include,  with its
               monthly,  quarterly and annual  financial  statements a schedule,
               certified by its chief financial officer,  on which the effect of
               such  Material  Accounting  Change  on such  statements  shall be
               described.

        "GENERAL INTANGIBLES":         Includes,  without  limitation,  "general
               intangibles"  as  defined  in the UCC;  and also  all:  rights to
               payment  for  credit  extended;  deposits;  amounts  due  to  the
               Borrowers;  credit    memoranda    in   favor  of  the Borrowers;

                                     - 15 -
<PAGE>

               warranty  claims; tax  refunds  and abatements; insurance refunds
               and premium   rebates;  all  means  and  vehicles  of  investment
               or  hedging, including,  without limitation,  options,  warrants,
               and  futures   contracts;  records;  customer  lists;   telephone
               numbers; goodwill; causes of action;  judgments;  payments  under
               any  settlement or other  agreement;  literary   rights;   rights
               to performance; royalties; license and/or franchise fees;  rights
               of admission; licenses; franchises; license agreements, including
               all rights of   the Borrowers to enforce the foregoing;  permits,
               certificates of convenience  and  necessity,  and similar  rights
               granted   by   any   governmental  authority;   patents,   patent
               applications,  patents  pending, and other intellectual property;
               internet addresses and  domain  names;  developmental  ideas  and
               concepts;   proprietary    processes;   blueprints,     drawings,
               designs,  diagrams,  plans,   reports,  and   charts;   catalogs;
               manuals; technical data; computer  software  programs  (including
               the source and object codes therefor  and related documentation),
               computer records, databases, rights  of access to computer record
               service   bureaus,   service   bureau computer  contracts,    and
               computer data; tapes, disks, semi-conductor  chips and printouts;
               trade  secrets,  copyrights, copyrightable   materials, copyright
               registrations  and applications,  mask work rights and interests,
               and  derivative   works and interests; user, technical reference,
               and other manuals and materials; trade names, trademarks, service
               marks,  and  all   goodwill  relating   thereto;    registrations
               and  applications  for   registration  of the foregoing;  and all
               other intangible property  of  the  Borrower  in  the  nature  of
               intellectual   property;    proposals;   cost   estimates,    and
               reproductions  on  paper,  or otherwise,  of any and all concepts
               or  ideas,  and any  matter   related  to,  or  connected   with,
               the design, development, manufacture,  sale,  marketing, leasing,
               or  use  of any or all  property  produced,  sold, or leased,  by
               the Borrowers or credit extended or services  performed,  by  the
               Borrowers,  whether  intended for an  individual  customer or the
               general   business   of  the   Borrowers,  or  used or  useful in
               connection with research and development by the Borrowers.

        "GOODS":      Has the meaning given that term in the UCC.

                                     - 16 -
<PAGE>

        "HAZARDOUS MATERIALS":     Any (a) hazardous materials, hazardous waste,
               hazardous   or  toxic substances or  petroleum  products that are
               defined or  regulated as a  hazardous  material in or  under  any
               Environmental Law and (b) oil in any physical state.

        "INDEBTEDNESS":    All indebtedness and obligations of or assumed by any
               Person on account of or in respect to any of the following:
                      (a)   Money   borrowed  (including  any indebtedness which
               is non-recourse to the credit of such Person but which is secured
               by an  Encumbrance  on any asset of such  Person)  whether or not
               evidenced by a promissory note, bond,  debenture or other written
               obligation to pay;
                      (b)   Any  letter  of credit  or  acceptance  transaction,
               including,   without   limitation,   the  Stated  Amount  of  all
               outstanding  letters  of credit  and  acceptances  issued for the
               account of such Person, and (without duplication) any amounts for
               which such Person would be obligated to provide  reimbursement or
               for which such  person is liable in  connection  with a letter of
               credit or acceptance transaction;
                      (c)   The   provision of recourse  in connection  with the
               sale or discount of accounts  receivable or chattel paper of such
               Person;
                      (d)   On   account  of recourse or  repayment  obligations
               with respect to deposits or advances.
                      (e)   As  lessee  under  Capital   Leases.  "Indebtedness"
               also includes:
                             (x)      Indebtedness  of    others  secured  by an
                      Encumbrance  on any asset of such  Person,  whether or not
                      such Indebtedness is assumed by such Person.
                             (y)      Any guaranty,  endorsement,  suretyship or
                      other  undertaking  pursuant  to which such  Person may be
                      liable on account of any obligation of another Person.

                                     - 17 -
<PAGE>
                             (z)      The Indebtedness of a partnership or joint
                      venture in which such Person is a general partner or joint
                      venturer, for which indebtedness such Person is liable.

        "INDEMNIFIED PERSON":Defined in Section 19.11.

        "INSTRUMENTS":Has the meaning given that term in the UCC.

        "INTEREST PAYMENT DATE":    With reference to:
                      (a)   Each  Base Margin Loan:  the first  Business  day of
               each month, the Termination Date, and the End Date.
                      (b)   Each   Eurodollar   Loan:   (i)  having an  Interest
               Period of one, two or three months,  the last day of the Interest
               Period relating  thereto,  the Termination Date and the End Date;
               (ii) having an Interest Period of six months, the last day of the
               third  month  of  such  Interest  Period,  the  last  day of such
               Interest Period, the Termination Date and the End Date.

        "INTEREST  PERIOD":  (a)      With   respect  to each  Eurodollar  Loan:
               Subject to Subsection  (c), below,  the period  commencing on the
               date of the making or  continuation  of, or  conversion  to, such
               Eurodollar   Loan  and   ending  on  the  day  that   corresponds
               numerically  to  such  date,   one,  two,  three  or  six  months
               thereafter,  as the Lead  Borrower  may  elect by  notice  to the
               Agent.
                             (b)      The setting of  Interest Periods is in all
               instances subject to the following:
                                    (i)        Any    Interest   Period   for  a
                             Eurodollar  Loan which would otherwise end on a day
                             that is not a  Eurodollar  Business  Day  shall  be
                             extended to the next succeeding Eurodollar Business
                             Day,   unless  that  succeeding Eurodollar Business
                             Day    is   in   the   next   calendar  month,   in
                             which  event such    Interest  Period  shall end on

                                     - 18 -
<PAGE>

                             the  last  Eurodollar  Business  Day  of  the month
                             during which the Interest Period ends.
                                    (i)       Subject to  Subsections  (iii) and
                             (iv) below,  any Interest  Period  applicable  to a
                             Eurodollar  Loan  that  begins  on a day for  which
                             there is no  numerically  corresponding  day in the
                             calendar  month during which such  Interest  Period
                             ends shall end on the last Eurodollar  Business Day
                             of the month  during  which  that  Interest  Period
                             ends.
                                   (ii)       Any  Interest  Period  that  would
                             otherwise end after the Termination  Date shall end
                             on the Termination Date.
                                   (iv)       No Interest Period applicable to a
                             Eurodollar Loan may be less than one (1) month.
                                  (iii)    There  shall be no more  than six (6)
                             Interest Periods applicable to Eurodollar Loans in
                             effect at any one time.

        "INVENTORY": Includes, without limitation, "inventory" as defined in the
               UCC and also all: packaging,  advertising, and shipping materials
               related to any of the  foregoing,  and all names or marks affixed
               or to be affixed  thereto  for  identifying  or selling the same;
               Goods  held for sale or lease  or  furnished  or to be  furnished
               under  a  contract  or  contracts  of  sale  or  service  by  the
               Borrowers,  or used or  consumed or to be used or consumed in the
               Borrowers' business; Goods in transit; returned,  repossessed and
               rejected  Goods;  and all Documents  (whether or not  negotiable)
               which represent any of the foregoing.

        "INVENTORY ADVANCE RATE":   The following percentages during the periods
               of each calendar year indicated in the chart below:

                              PERIOD                       PERCENTAGE

                      January 1 - August 31                    72%

                    September 1 - December 31                  78%

                                     - 19 -
<PAGE>

        "INVENTORY  RESERVES":Such  reserves as may be established  from time to
               time by the Agent in the Agent's  reasonable  discretion (using a
               methodology  disclosed to and after  consultation  with, the Lead
               Borrower)  with    respect  to   the     determination   of   the
               merchantability, at Retail, of the Acceptable Inventory, or which
               reflect  such other  factors  as affect  the market  value of the
               Acceptable  Inventory.  Without  limiting the  generality  of the
               foregoing,  Inventory  Reserves  may include (but are not limited
               to) reserves based on the following:
                             (i)    Obsolescence    (determined    based    upon
                                    Inventory  on  hand  beyond a  given  number
                                    of days).
                             (ii)   Seasonality.
                             (iii)  Shrinkage  (including any amount required to
                                    bring  Inventory  in  line  with  Borrowers'
                                    historical stock ledger  shrinkage  reserve,
                                    to the  extent  that  the  Borrowers'  stock
                                    ledger  shrinkage  reserve is lower than its
                                    last  12  months   historical  stock  ledger
                                    shrinkage reserve).
                             (iv)   Change in Inventory   character.
                             (v)    Change in   Inventory   composition
                             (vi)   Change in Inventory mix.
                             (vii)  Markdown  (both   permanent  and  point   of
                                    sale).
                             (viii) Retail markdowns and markups inconsistent
                                    with prior period practice and  performance;
                                    industry  standards;  the Business  Plan; or
                                    advertising calendar and planned advertising
                                    events.
                       (ix) Return to Vendors. (x) Damage.

        "INVESTMENT PROPERTY":      Has the meaning given that term in the UCC.

        "ISSUER":     The issuer of any L/C.

                                     - 20 -
<PAGE>

        "LANDLORD STATE":      Initially Washington, Virginia, and Pennsylvania,
               and such  other  states  in which a landlord's claim for rent has
               priority  over  the  Security  Interests  of  the  Agent  in  the
               Collateral.

        "L/C":    Any letter of credit, the issuance of which is procured by the
               Agent for the  account of any Borrower and any acceptance made on
               account of such letter of credit.

        "L/C   LANDING  COSTS":  To the extent not included in the Stated Amount
               of an L/C, customs,  duty, freight, and other out-of-pocket costs
               and expenses which will be expended to "land" the Inventory,  the
               purchase of which is supported by such L/C.

        "LEASE":        Any   lease  or  other  agreement,  no matter how styled
               or structured, pursuant  to which any Borrower is entitled to the
               use or occupancy of any space.

        "LEASEHOLD INTEREST":  Any interest of the Borrowers as lessee under any
               Lease.

        "LENDERS":    Defined in the Preamble to this Agreement.

        "LIABILITIES" (in the singular, "LIABILITY"):      Includes,     without
               limitation, all  and each of the following arising under the Loan
               Documents, whether now existing or hereafter arising:
                      (a)       Any and all  direct  and  indirect  liabilities,
               debts,  and  obligations  of the Borrowers to the Agent or to any
               Lender, of every kind, nature, and description.
                      (b)       Each     obligation   to   repay    any    loan,
               advance,     indebtedness,   note,   obligation,   overdraft,  or
               amount  now    or   hereafter  owing   by  the  Borrowers  to the
               Agent   or   any   Lender   (including   all    future   advances
               whether or not made  pursuant  to  a  commitment by   the   Agent
               or  any   Lender),   whether   or   not    any    of    such  are

                                     - 21 -
<PAGE>

               liquidated,    unliquidated,    primary,   secondary,    secured,
               unsecured,  direct,  indirect,  absolute,  contingent,  or of any
               other type, nature, or description,  or by reason of any cause of
               action  which  the  Agent  or any  Lender  may hold  against  the
               Borrowers.
                      (c)      All notes and other  obligations of the Borrowers
               now or hereafter  assigned to or held by the Agent or any Lender,
               of every kind, nature, and description.
                      (d)      All interest, fees, and charges and other amounts
               which may be charged by the Agent or any Lender to the  Borrowers
               and/or  which may be due from the  Borrowers  to the Agent or any
               Lender from time to time.
                      (e)      All costs and  expenses  incurred  or paid by the
               Agent or any  Lender in  respect  of any  agreement  between  the
               Borrowers and the Agent or any Lender or instrument  furnished by
               the  Borrowers  to the Agent or any  Lender  (including,  without
               limitation, Costs of Collection,  reasonable attorneys' fees, and
               all court and litigation costs and expenses).
                      (f)      Any and all covenants of the Borrowers to or with
               the  Agent  or any  Lender  and any and  all  obligations  of the
               Borrowers to act or to refrain from acting in accordance with any
               agreement  between the  Borrowers  and the Agent or any Lender or
               instrument furnished by the Borrowers to the Agent or any Lender.
                      (g)      Each of the foregoing as if each reference to the
               "Agent or any  Lender "  therein  were to each  Affiliate  of the
               Agent.

        "LINE (UNUSED) FEE":        Defined in Section 2.13.

        "LIQUIDATION":The  exercise,  by the Agent,  of those rights accorded to
               the Agent under the Loan Documents as a creditor of the Borrowers
               following  and on account of  Acceleration  looking  towards  the
               realization   of  the   Collateral.   Derivations   of  the  word
               "Liquidation" (such as "Liquidate") are used with like meaning in
               this Agreement.

                                     - 22 -
<PAGE>

        "LOAN ACCOUNT":      Defined in Section 2.7.

        "LOAN CEILING":     The aggregate amount of the Dollar Commitment of all
               Lenders, which shall equal One Hundred and Twenty Million Dollars
               ($120,000,000).

        "LOAN  DOCUMENTS":       This  Agreement,  each  instrument and document
               executed  and/or  delivered as  contemplated by Article 3, below,
               and each other  instrument or document from time to time executed
               and/or delivered in connection with the arrangements contemplated
               hereby with the Agent or any Lender or any Affiliate of the Agent
               or any Lender,  including,  without  limitation,  any transaction
               which arises out of any cash management,  depository, investment,
               letter of credit,  interest rate protection provided by the Agent
               or any Lender or any Affiliate of the Agent or any Lender,  or in
               connection  with any transaction of the Borrowers or any Borrower
               with the  Agent or any  Affiliate  of the  Agent,  as each may be
               amended from time to time.

        "LOAN TO COLLATERAL RESERVES":      Reserves set so that the amount made
               available under the   Borrowing  Base   on account  of Acceptable
               Inventory does not exceed in    the aggregate the Net Liquidation
               Value multiplied by 85%.

        "LOCAL DISBURSEMENT ACCOUNT":          A deposit account maintained by a
               Borrower,   into  which  amounts  may  be  transferred  from  the
               Operating  Account  for use solely (i) as a source of petty cash;
               (ii)  to  make   payroll   payments;   or  (iii)  to  make  other
               disbursements that are identified on EXHIBIT 1 hereto.

        "MAJORITY LENDERS":  Lenders (other than Delinquent Lenders) holding 51%
               or more of  the Dollar Commitments (other than Dollar Commitments
               held by Delinquent Lenders).


                                     - 23 -
<PAGE>

        "MARGIN PRICING GRID":   Provides for monthly adjustment to the interest
               rate   to    be  charged  on  Revolving   Credit  Loans  based on
               Availability and is shown in Section 2.10(e).

        "MATERIAL ACCOUNTING  CHANGE":          Any change in GAAP applicable to
               accounting  periods subsequent to the Borrowers' fiscal year most
               recently  completed prior to the execution of this Agreement,  if
               such  change has a material  effect on the  Borrowers'  financial
               condition  or  operating  results,   as  reflected  on  financial
               statements  and reports  prepared by or for the  Borrowers,  when
               compared with such condition or results as if such change had not
               taken place,  or where  preparation of the Borrowers'  statements
               and reports in compliance  with such change results in the breach
               of a financial  performance  covenant imposed pursuant to Section
               5.12 (if applicable), where such a breach would not have occurred
               if such change had not taken place or visa versa.

        "MATERIAL ADVERSE CHANGE": Any event, fact, circumstance,  change in, or
               effect on, the business of any Borrower, which individually or in
               the  aggregate  or on a cumulative  basis with any other  events,
               facts, circumstances, changes in, or effects on, the Borrowers or
               the Collateral, taken as a whole, which:
                      (a)        Would  reasonably  be  expected  to  materially
               adversely affect the ability of the Borrowers taken as a whole to
               (i) operate or conduct  their  business in the  aggregate  in all
               material  respects  in the  manner  in  which  such  business  is
               currently  operated  or  conducted  or  in  which  such  business
               (meaning  primarily the retail sale of housewares,  and items for
               the home and  related  concepts)  might be  viably  conducted  by
               expansion into additional, or by transition into other, venues or
               mediums,  or (ii) to  perform  their  obligations  under the Loan
               Documents.
                      (b)      Would  reasonably  be expected to have a material
               adverse effect on the value, enforceability, or collectability of
               the Collateral.

                                     - 24 -
<PAGE>

        "MATERIAL ADVERSE EFFECT":       A result, consequence, or outcome which
               constitutes a Material Adverse Change.

        "MATURITY DATE":     November 30, 2003, or if such day is not a Business
               Day, the next succeeding Business Day.

        "NET   LIQUIDATION   VALUE":        The  product  of  (a)  the  Cost  of
               Acceptable  Inventory (net of Inventory  Reserves)  multiplied by
               (b) the  percentage of such Cost  estimated to be realizable in a
               Liquidation  thereof,  as  determined  by the  then  most  recent
               appraisal of the Borrowers'  Inventory  undertaken at the request
               of the Agent.

        "NOMINEE":    A   business   entity   (such as  a corporation or limited
               partnership)  formed   by  the  Agent   to own or manage any Post
               Foreclosure Asset.

        "NONCONSENTING LENDER":     Defined in Section 16.9(a).

        "OPERATING ACCOUNT": Defined in Section 7.3(a)(iii).

        "PARTICIPANT":       Defined in Section 19.14, hereof.

        "PERMISSIBLE  OVERLOANS":       Revolving  Credit Loans  hereunder which
               aggregate  not more than 5% of the Loan  Ceiling in effect on the
               date  of  this  Agreement,   where  such  loans  are  either  (a)
               Protective Advances or (b) made when Availability equals zero and
               are not extant for more than sixty (60) days  absent the  consent
               of  SuperMajority   Lenders  pursuant  to  Section  16.3  hereof;
               provided however, in no event shall the making of any Permissible
               Overloan cause the Loan Ceiling to be exceeded.

        "PERMITTED ENCUMBRANCES":   The following:
                      (a)    Encumbrances in favor of the Agent.

                                     - 25 -
<PAGE>

                      (b)    Those   Encumbrances  (if  any)  listed  on EXHIBIT
               4.7, annexed hereto.
                      (c)      Liens  securing the payment of taxes,  either not
               yet  overdue  or the  validity  of which is  being  contested  as
               permitted  by Section  4.15(d);  non-consensual  statutory  liens
               (other than liens  securing the payment of taxes)  arising in the
               ordinary  course of Borrowers'  business to the extent such liens
               secure (i) indebtedness  that is not overdue,  (ii)  indebtedness
               relating  to claims or  liabilities  which are fully  insured and
               being  defended at the sole cost and expense and at the sole risk
               of the insurer or are being  contested  by the  Borrowers in good
               faith by  appropriate  proceedings  diligently  pursued,  in each
               instance  prior  to the  commencement  of  foreclosure  or  other
               similar  proceedings and provided that adequate reserves therefor
               have been set aside on the Borrowers' books  (provided,  however,
               that  the  inclusion  of  any  of  the  foregoing  as  "Permitted
               Encumbrances"   shall  not  affect  their   respective   relative
               priorities vis a vis the security  interests created herein),  or
               (iii) zoning  restrictions,  easements,  licenses,  covenants and
               other restrictions affecting the use of real property.
                      (d)        Deposits  under  workmen's        compensation,
               unemployment insurance and social security laws, or to secure the
               performance  of  bids,  tenders,  contracts  (other  than for the
               repayment of borrowed  money) or leases,  or to secure  statutory
               obligations  or surety or appeal bonds,  or to secure  indemnity,
               performance or other similar bonds arising in the ordinary course
               of business.
                      (e)       Landlord's  liens  arising by  operation  of law
               where waivers have not been obtained.
                      (f)      Purchase money security  interests or capitalized
               equipment  leases  on  any  property  acquired  or  held  by  the
               Borrowers  in  the  ordinary  course  of  business  and  securing
               Indebtedness incurred or assumed for the purpose of financing all
               or any  part of the cost of  acquiring  such  property;  provided
               however that (i) any such  Encumbrance  attaches to such property
               concurrently   with  or  within   twenty   (20)  days  after  the
               acquisition thereof, (ii) such Encumbrance attaches solely to the
               property   so   acquired  in   such  transaction  and  (iii)  the

                                     - 26 -
<PAGE>

               principal   amount of the  Indebtedness  secured thereby does not
               exceed 100% of the cost of such property.

        "PERMITTED INVESTMENT":       An investment  which  fulfills  any of the
               following numbered criteria:
                             (1)      Debt entitled to the full faith and credit
                      of the United  States  with  maturities  not to exceed one
                      hundred and eighty-one (181) days.
                             (2)       Banker's  acceptances  accepted,  savings
                      accounts made  available,  repurchase  agreements  entered
                      into, and  certificates  of deposit issued by the Agent or
                      any bank  whose  most  senior  debt has been  assigned  an
                      investment grade credit rating by a nationally  recognized
                      credit rating service.
                             (3)      Commercial  paper rated A-1/P-1.
                             (4)      Money  market accounts or funds within the
                      meaning  of Rule  2a-7 of the  Investment  Company  Act of
                      1940, in effect as of the date of this Agreement.
                             (5)      Such other  investments as may be approved
                      in writing by Agent in its discretion.

        "PERMITTED REPURCHASES OR  DEBT RETIREMENT": Defined in Section 4.20(b).

        "PERSON":    Any natural person, corporation, limited liability company,
               trust, partnership, joint venture, or other enterprise or entity.

        "POST FORECLOSURE ASSET":   All or any part of the Collateral, ownership
               of which   has been acquired by the Agent or a Nominee on account
               of   the  Agent  "bidding   in" on  behalf  of  the  Lenders at a
               foreclosure of Collateral as part of a Liquidation.

        "PRO-RATA":    With  respect  to   any   Lender,  a fraction  (expressed
               as a    percentage),  the  numerator of which shall be the amount
               of such  Lender's Dollar  Commitment and the denominator of which
               shall   be   the  aggregate  amount   of   all   of  the Lenders'

                                     - 27 -
<PAGE>

               Dollar  Commitments,  as adjusted from time to time in accordance
               with the  provisions  of Section 11.13 hereof,  provided that, if
               the Commitments  have    been  terminated, the numerator shall be
               the unpaid amount of such    Lender's  Revolving Credit Loans and
               its interest in L/C exposure    and the denominator  shall be the
               aggregate  amount  of  all unpaid  Revolving Credit Loans and L/C
               exposure.

        "PROCEEDS":   Includes, without limitation, "proceeds" as defined in the
               UCC, and proceeds of all Collateral.

        "PROTECTIVE  ADVANCES":         The aggregate of Revolving  Credit Loans
               and expenditures and incurrence of obligations by the Agent which
               are made or  undertaken in the Agent's  reasonable  discretion to
               protect or preserve the  Collateral  and the Agent's  rights upon
               default  or  otherwise,  or which  the  Agent  determines  in its
               reasonable   discretion   are   appropriate   to   facilitate   a
               Liquidation.

        "RECEIPTS":    All cash, cash equivalents, checks, and credit card slips
               and receipts arising from the sale of the Collateral.

        "RECEIVABLES COLLATERAL":   Any rights to payment with respect to any of
               the Collateral.

        "REGISTER":   Defined in Section 17.1(f).

        "RELATED ENTITY":      Any Person (other than a natural person) which is
               a parent,  Subsidiary,  or Affiliate of any Borrower;  could have
               such   enterprise's   tax   returns   or   financial   statements
               consolidated  with any Borrower's;  could be a member of the same
               controlled  group of corporations  (within the meaning of Section
               1563(a)(1),  (2) and (3) of the Internal Revenue Code of 1986, as
               amended  from time to time) of which any  Borrower is a member or
               controls or is  controlled by any Borrower or by any Affiliate of
               any Borrower.

                                     - 28 -
<PAGE>

        "REQUIREMENT OF LAW":As to any Person:
                             (a)(i) All statutes, rules, regulations, orders, or
               other  requirements  having  the  force of law and (ii) all court
               orders and injunctions,  arbitrator's  decisions,  and/or similar
               rulings,  in each  instance  ((i) and (ii)) of or by any federal,
               state,  municipal,  and other governmental  authority,  or court,
               tribunal,  panel, or other body which has or claims  jurisdiction
               over such Person, or any property of such Person, or of any other
               Person for whose conduct such Person would be responsible.
                             (b)       Such  Person's  charter,  certificate  of
               incorporation,   articles  of  organization,       and/or   other
               organizational documents, as applicable; and
                             (c)        Such  Person's   by-laws   and/or  other
               instruments which deal with corporate or similar  governance,  as
               applicable.

        "RESERVE PERCENTAGE":The decimal equivalent of that rate applicable to a
               Lender under regulations issued from time to time by the Board of
               Governors  of the  Federal  Reserve  System for  determining  the
               maximum  reserve  requirement  of that  Lender  with  respect  to
               "Eurocurrency  liabilities" as defined in such  regulations.  The
               Reserve  Percentage  applicable to a particular  Eurodollar  Loan
               shall be based upon that in effect  during the  subject  Interest
               Period,  with changes in the Reserve Percentage which take effect
               during such Interest  Period to take effect (and to  consequently
               change any interest rate determined with reference to the Reserve
               Percentage) if and when such change is applicable to such loans.

        "RESERVES":   All Availability  Reserves and Inventory Reserves, if any.

        "RETAIL":         The  current  ticket  price  aggregated  by  SKU  of a
               Borrower's Acceptable  Inventory,  as reflected in the Borrowers'
               Consolidated  stock  ledger,  except  that  to  the  extent  that
               Acceptable  Inventory  is  not  reflected  in the  stock  ledger,
               "Retail"  shall  be  determined   using  such  non  stock  ledger
               inventory  systems  of the

                                     - 29 -
<PAGE>

               Borrowers  as the  Agent  shall  deem   adequate for such purpose
               in its reasonable discretion.

        "REVOLVING CREDIT":  Is defined in Section 2.1.

        "REVOLVING CREDIT LOAN":       A  particular  loan  or   advance made or
               continued pursuant to the Revolving Credit.

        "REVOLVING CREDIT NOTE":    Defined in Section 2.8.

        "SEC":      The United States Securities and Exchange Commission, or any
               successor thereto.

        "STATED AMOUNT":     The maximum amount for which an L/C may be honored,
               less any amounts already drawn thereunder.

        SUBSIDIARY" or  "SUBSIDIARIES":         (a) Any  corporation  or limited
               liability  company of which more than fifty  percent (50%) of the
               issued and  outstanding  securities  having ordinary voting power
               for the election of directors or membership interests is owned or
               controlled,  directly or indirectly, by a Person and/or by one or
               more of its  Subsidiaries,  and (b) any  partnership  in  which a
               Person and/or one or more  Subsidiaries of such Person shall have
               a general partnership  interest or any other interest (whether in
               the  form of  voting  or  participation  in  profits  or  capital
               contribution), in each case, of more than fifty percent (50%).

        "SUPERMAJORITY  LENDERS":       Lenders (other than Delinquent  Lenders)
               holding  66-2/3% or more of the total Dollar  Commitments  (other
               than Dollar Commitments held by a Delinquent Lender).

                                     - 30 -
<PAGE>

        "SUSPENSION  EVENT":  Any  occurrence,  circumstance,  or state of facts
               which (a) is an Event of  Default;  or (b)  except in the case of
               the events  described in Sections 10.4 and 10.7,  would become an
               Event of Default if any requisite  notice were given by the Agent
               and/or  any  requisite  period  of  time  were  to run  and  such
               occurrence,  circumstance,  or state of facts were not absolutely
               cured within any applicable grace period.

        "SWINGLINE": The facility described in Section 2.6 pursuant to which the
               SwingLine  Lender may advance  SwingLine  Loans to the  Borrowers
               aggregating up to the SwingLine Loan Ceiling.

        "SWINGLINE LENDER":  BBRF.

        "SWINGLINE LOAN CEILING":   Ten Million Dollars ($10 Million).

        "SWINGLINE LOANS":   Revolving Credit Loans advanced under the SwingLine
               by the SwingLine Lender and defined in Section 2.6(a).

        "SWINGLINE NOTE":    As defined in Section 2.6(c).

        "TERMINATION DATE":  The earliest of (a) the Maturity  Date;  or (b) the
               occurrence of any event described in Section 10.11 hereof; or (c)
               the date set as the Termination  Date in a notice by the Agent to
               the Lead  Borrower on account of the  occurrence  of any Event of
               Default other than as described in Section 10.11 hereof.

        "TRANSFER":  Wire  transfer   pursuant  to  the  wire  transfer   system
               maintained  by the  Board of  Governors  of the  Federal  Reserve
               Board,  or as otherwise may be agreed to from time to time by the
               Agent making such Transfer and the respective Lender.
                      Transfers  by   the   Agent   to   all    Lenders   or  to
               any    Person   who  becomes a Lender pursuant  to Section  17.1,
               shall    be     effected    pursuant    to    wire   instructions

                                     - 31 -
<PAGE>

               given    by    the    respective    Lenders  or  by  such  Person
               to, and agreed to by, the Agent or as  otherwise mutually agreed.
                      Wire  transfers to the Agent shall be in  accordance  with
               the following wire instructions:
                                    BankBoston, N.A.
                                    ABA No. 01100390
                                    Acct Name:  BankBoston Retail Finance Inc.
                                    Acct No.:      53039952
                                    Reference:     Lechters, Inc.

               Wire  instructions  may be changed in the same manner that Notice
               Addresses  may be  changed,  except  that no  change  of the wire
               instructions  for  Transfers  to any  Lender  shall be  effective
               without the Consent of the Agent.

        "UCC":       The Uniform Commercial Code , as presently in effect in the
               State   of   New  York as   used  herein  in the  context  of any
               definitions; otherwise, as  in  effect  from  time to time in the
               State of New York.

        "UNANIMOUS CONSENT":    The consent of all Lenders other than Delinquent
               Lenders.

        "UNDERWRITING FEE":         Is defined in Section 2.12.

        "YEAR  2000  COMPLIANT":         The ability of  computer  applications,
               imbedded microchips, and other systems and subsystems to properly
               recognize certain dates prior to, on, and after December 31, 1999
               and perform their intended function without any adverse effect on
               account  of  their  treating  any date  prior  to,  on,  or after
               December 31, 1999 other than as the specific date in question.

                                     - 32 -
<PAGE>

ARTICLE II - THE REVOLVING CREDIT:

        2.1    Establishment of  Revolving Credit.
               (a)      The Lenders hereby  establish a revolving line of credit
(the "REVOLVING  CREDIT") in the Borrowers' favor pursuant to which each Lender,
subject to, and in accordance  with, this  Agreement,  acting through the Agent,
shall make loans and advances and otherwise provide financial  accommodations to
and for the account of the Borrowers as provided herein,  in each instance equal
to that Lender's Commitment Percentage of Availability, up to the maximum amount
of that Lender's Dollar Commitment. The amount available for borrowing under the
Revolving  Credit shall be determined by the Agent by reference to Availability,
as determined by the Agent from time to time.
               (b)    As used herein,  the  following  terms have the  following
                      meanings:
                      (i)  "AVAILABILITY"  refers  at any time to the  result of
                           applying the following formula:
                           (A)    Borrowing Base.
                           Minus
                           (B)    The then  unpaid   principal  balance  of  the
                           Loan  Account.
                           Minus
                           (C)    The then Stated Amount of all L/C's.

                      (ii)   "BORROWING  BASE"  refers at any time to the lesser
                             of  2.1(b)(ii)(A) or  2.1(b)(ii)(B),  where:
                             (A) is the Loan Ceiling.
                             (B) is  the  result  of   applying  the   following
                             formula:
                                    (I)     The   product  of  the  Credit  Card
                                            Advance  Rate   multiplied   by  the
                                            aggregate  face amount of Acceptable
                                            Credit Card Receivables.
                                    Plus

                                     - 33 -
<PAGE>

                                    (II)    The product of the Inventory Advance
                                            Rate   multiplied  by  the  Cost  of
                                            Acceptable    Inventory    (Net   of
                                            Inventory Reserves).
                                    Plus
                                    (III)   The product of  Ninety-Five  percent
                                            (95%)  multiplied by Acceptable Cash
                                            Collateral.
                                    Minus
                                    (IV)       The   then   aggregate   of   the
                                    Availability Reserves.
                                    Minus
                                    (V) The Loan to Collateral Reserves.
               (c)        Availability   shall  be  based  upon  Borrowing  Base
Certificates furnished as provided in Section 5.4 hereof.
               (d)      The proceeds of borrowings  under the  Revolving  Credit
shall be used
                      (i)  to  retire  the Lead  Borrower's  existing  revolving
                           credit facility;
                      (ii) for  on-going  working  capital  requirements  of the
                           Borrowers;
                      (iii)for   Permitted  Repurchases   and  Debt  Retirement;
                           and
                      (iv) for general corporate purposes and  in all  cases  to
                           the extent permitted by this Agreement.

        2.2    Advances in Excess of Borrowing Base.
               (a)       No  Lender  has any  obligation  to  make  any  loan or
advance,  or otherwise to provide any credit for the benefit of the Borrowers to
the extent that the balance of the Loan Account would as a result thereof exceed
the Borrowing Base.
               (b)      The Lenders' obligations among themselves are subject to
Section 13.3(a) (which relates to each Lender's making amounts  available to the
Agent)  and to  Sections  16.1(d)  and  16.3(a)  (which  relate  to  Permissible
Overloans),
               (c)      The  Lenders'  providing  of  credit  in excess of their
obligations  under  this  Agreement  on any one  occasion  does not  affect  the
Liabilities  of the Borrowers  hereunder nor shall it obligate the Lenders to do
so on any other occasion.

                                     - 34 -
<PAGE>

        2.3      Risks  of  Value  of  Collateral.    The  Agent's  reference to
a given asset in connection with the making of loans,  credits, and advances and
the providing of financial  accommodations under the Revolving Credit and/or the
monitoring  of  compliance  with the  provisions  hereof  shall  not be deemed a
determination  by the Agent or any Lender  relative  to the actual  value of the
asset in question.  All risks concerning the  collectability  of the Receivables
Collateral and the  merchantability  of the Borrowers'  Inventory are and remain
the  Borrowers'.  All  Collateral  secures the prompt,  punctual,  and  faithful
performance of the Liabilities whether or not relied upon by the Agent or by any
Lender in  connection  with the making of loans,  credits,  and advances and the
providing of financial accommodations under the Revolving Credit.

        2.4    Loan Requests.
               (a)      Subject to the provisions of this  Agreement,  a loan or
advance  under  the  Revolving  Credit  duly and  timely  requested  by the Lead
Borrower shall be made pursuant hereto, provided that:
                      (i)    The  Borrowing  Base shall  not  be  exceeded;  and
                      (ii)   The  Revolving  Credit  has not  been suspended  as
                             provided in Section 2.4 (h).
               (b)      Subject to the  provisions of this  Agreement,  the Lead
Borrower  may  request a Revolving  Credit  Loan by giving the Agent  written or
telephone notice (confirmed writing in the form of EXHIBIT 2.4(B) as follows:
                      (i)       If such  Revolving  Credit  Loan is to be a Base
        Margin Loan (which shall include the  conversion of a Eurodollar  Loan):
        By 11:30 A.M. on the Business Day on which such Revolving Credit Loan is
        to be made.  Base Margin  Loans  requested by the  Borrower,  other than
        those resulting from the conversion of a Eurodollar  Loan,  shall not be
        less than $10,000.00.
                      (ii) If such  Revolving  Credit  Loan is to be  Eurodollar
        Loan (which shall include the  continuation  of, or the  conversion of a
        Base  Margin  Loan to, a  Eurodollar  Loan):  By 1:00 P.M.  on the third
        Eurodollar  Business Day prior to the first day of the  Interest  Period
        being requested. Eurodollar Loans shall each be not less than $1,000,000
        and in increments of $500,000 in excess of such minimum.

                                     - 35 -
<PAGE>

                      (iii) Any Eurodollar  Loan which matures while an Event of
        Default is extant  may be  converted,  at the option of the Agent,  to a
        Base Margin Loan  notwithstanding any notice from the Borrower that such
        loan is to be continued as a Eurodollar Loan.
               (c)       Any  request  for a  Revolving  Credit  Loan or for the
conversion  of a  Revolving  Credit  Loan  which is made  after  the  applicable
deadline therefor,  as set forth above, shall be deemed to have been made at the
opening of business on the next  Business  Day or  Eurodollar  Business  Day, as
applicable.  Each request for a Revolving Credit Loan or for the conversion of a
Revolving  Credit  Loan shall be made in such manner as may from time to time be
acceptable to the Agent.
               (d)      The Lead  Borrower  may request that the Agent cause the
issuance of L/C's for the account of a Borrower as provided in Section 2.17.
               (e)      The Agent may rely on any  request for a loan or advance
or other financial  accommodation under the Revolving Credit which the Agent, in
good faith,  believes to have been made by a Person  duly  authorized  to act on
behalf of the Lead Borrower and may decline to make any such  requested  loan or
advance, or issuance, or to provide any such financial accommodation pending the
Agent's  being  furnished  with  such  documentation  concerning  that  Person's
authority to act as may be reasonably satisfactory to the Agent.
               (f)      A request by the Lead  Borrower for a loan or advance or
other financial  accommodation  under the Revolving  Credit shall be irrevocable
and shall constitute  certification by each Borrower that as of the date of such
request, each of the following is true and correct:
                      (i)      There has been no Material  Adverse Change in the
        Borrowers'   Consolidated  financial  condition  from  the  most  recent
        financial information furnished Agent pursuant to this Agreement.
                      (ii) Each  Borrower  is in  compliance  with,  and has not
        breached any of, its covenants contained in this Agreement.
                      (iii) All or a portion of any loan or advance so requested
        will be set aside or adequate  reserves will otherwise be established by
        the  Borrowers  to the  extent  necessary  to pay  when  due  all of the
        Borrowers'  obligations for sales tax on account of sales since the then
        most recent borrowing pursuant to the Revolving Credit.

                                     - 36 -
<PAGE>

                      (iv) Each representation which is made herein or in any of
        the Loan Documents is then true and complete as of and as if made on the
        date of such request (unless such  representation  relates to an earlier
        date,  in  which  event  such  representation  shall  be true as of such
        earlier date).
                      (v)      No Suspension Event is then continuing.
               (g)    During  the  continuance  of any Suspension Event, neither
the Agent on behalf of the Lenders nor the  Swingline  Lender shall be obligated
to make any loans or advances, to provide any financial accommodation hereunder,
to issue  any L/C,  or to  accept  any  request  of the Lead  Borrower  that any
Eurodollar  Loan be made or any Base Margin Loan be  converted  to a  Eurodollar
Loan.

        2.5    Making of Loans Under Revolving Credit.
               (a)      A loan or advance  under the  Revolving  Credit shall be
made by the  transfer of the  proceeds of such loan or advance to the  Operating
Account or as otherwise instructed by the Lead Borrower.
               (b)      A loan or  advance  shall be  deemed  to have  been made
under the Revolving  Credit (and the Borrowers  shall be indebted to the Lenders
for the amount thereof  immediately) upon the Agent's initiation of the transfer
of the proceeds of such loan or advance in accordance  with the Lead  Borrower's
instructions  or the charging of the amount of such loan to the Loan Account (in
all other circumstances).
               (c)      There shall not be any  recourse to or  liability of the
Agent or any  Lender  (except to the extent  caused by the gross  negligence  or
willful  misconduct  of the  Agent or any  Lender  as  determined  by a court of
competent jurisdiction), on account of:
                      (i)  Any  delay  in  the  making  of  any loan or  advance
        requested under the Revolving Credit.
                      (ii) Any delay in the proceeds of any such loan or advance
        constituting collected funds.
                      (iii)  Any   delay  in  the  receipt,  and/or  any   loss,
        of   funds    which   constitute   a   loan   or   advance   under   the
        Revolving    Credit,  the    wire   transfer    of    which was properly

                                     - 37 -
<PAGE>

        initiated by the Agent in accordance with  wire instructions provided to
        the Agent by the Lead Borrower.

        2.6    SwingLine Loans
               (a)      For ease of  administration,  Base  Margin  Loans may be
made by the  SwingLine  Lender  (in the  aggregate,  the  "SWINGLINE  LOANS") in
accordance  with the  procedures  set forth in this  Agreement for the making of
loans and advances under the Revolving  Credit.  The unpaid principal balance of
the SwingLine Loans shall not at any one time be in excess of the SwingLine Loan
Ceiling  (which  SwingLine  Loan Ceiling is subject to  amendments  from time to
time, by reasonable advance written notice by the Agent to the Lead Borrower).
               (b)      The  aggregate  unpaid  principal  balance of  SwingLine
Loans  shall  bear  interest  as if the same were loans and  advances  under the
Revolving Credit.
               (c)        The  obligation  to  repay  SwingLine  Loans  shall be
evidenced by a Note (the "SWINGLINE NOTE")in the form of EXHIBIT 2.6(C), annexed
hereto,  executed  by the Lead  Borrower  on  behalf  of  itself  and the  other
Borrowers and payable to the SwingLine  Lender.  Neither the original nor a copy
of the  SwingLine  Note shall be  required,  however,  to establish or prove any
Liability  with respect to the SwingLine  Loans.  Upon the Lead  Borrower  being
provided  with  an  affidavit  (which  shall  include  an  indemnity  reasonably
satisfactory  to the Lead  Borrower)  from  the  Agent  to the  effect  that the
SwingLine Note has been lost, mutilated,  or destroyed,  the Lead Borrower shall
on behalf of itself and the other  Borrowers  execute a replacement  thereof and
deliver such replacement to the SwingLine Lender.
               (d)      For all purposes of this Loan  Agreement,  the SwingLine
Loans and the Lead Borrower's obligations to the SwingLine Lender constitute and
are secured as "Liabilities".
               (e)       SwingLine  Loans may be subject to periodic  settlement
with the Lenders as provided in Section 13.2 of this Loan Agreement.

        2.7    The Loan Account.
               (a)      An account ("LOAN ACCOUNT") shall be opened on the books
of the Agent.  A record may be kept in the Loan  Account of all loans made under
or pursuant to this Agreement and of all payments thereon.

                                     - 38 -
<PAGE>

               (b)      The  Agent may also  keep a record  (either  in the Loan
Account or elsewhere, as the Agent may from time to time elect) of all interest,
fees, service charges,  costs,  expenses,  and any other amounts owed the Agent,
the SwingLine  Lender and each Lender on account of the  Liabilities  and of all
credits against all such amounts so owed.
               (c)      All credits against the Liabilities shall be conditional
upon receipt of final payment to the Agent for the Account of each Lender of the
amounts so credited.  The amount of any item  credited  against the  Liabilities
which is  charged  back  against  Agent or any  Lender  for any reason or is not
finally  paid  shall be a  Liability  and  shall  be added to the Loan  Account,
whether or not the item so charged back or not so paid is returned.
               (d)      Except as otherwise  provided herein,  all fees, service
charges, costs, and expenses for which the Borrowers are obligated hereunder are
payable on demand.  In the  determination  of  Availability,  the Agent may deem
fees,  service charges,  accrued interest,  and other payments which will be due
and payable between the date of such determination and the first day of the then
next  succeeding  month as having  been  advanced  under the  Revolving  Credit,
whether or not such amounts are then due and payable.
               (e)      The Agent, without the request of the Lead Borrower, may
advance under the Revolving Credit any interest,  fee, service charge,  or other
payment to which the Agent or any Lender is entitled from the Borrowers pursuant
hereto  and may charge the same to the Loan  Account  notwithstanding  that such
amount so advanced may result in the Borrowing Base being exceeded.  Such action
on the part of the Agent shall not  constitute a waiver of the Agent's rights or
the Borrowers'  obligations  under Section 2.9(b).  Any amount which is added to
the  principal  balance of the Loan Account as provided in this  Section  2.7(e)
shall bear interest , subject to Section 2.10(d), at the Base Margin Rate.
               (f)      Any statement rendered by the Agent or any Lender to the
Borrowers   concerning   the   Liabilities   shall, in   the absence of manifest
error,   be   considered  correct   and  accepted  by  the  Borrowers  and shall
be  conclusively   binding  upon   the  Borrowers  unless  the   Lead   Borrower
provides the Agent with   written  objection  thereto  within  thirty  (30) days
from   the    mailing  of  such  statement,  which   written   objection   shall
indicate,  with  particularity,  the  reason for such objection.  In the absence
of   manifest  error,  the   Loan   Account   and   the   Agent's   books    and

                                     - 39 -
<PAGE>

records  concerning the loan arrangement contemplated herein and the Liabilities
shall be prima facie evidence of the items described therein.

        2.8      The Revolving  Credit Notes.  The obligation to repay loans and
advances under the Revolving Credit, with interest as provided herein,  shall be
evidenced by Notes (each, a "REVOLVING CREDIT NOTE") in the form of EXHIBIT 2.8,
annexed hereto,  executed by the Lead Borrower on behalf of itself and the other
Borrowers,  one payable to each  Lender.  Neither the original nor a copy of any
Revolving  Credit Note shall be  required,  however,  to  establish or prove any
Liability.  In the event that any Revolving Credit Note is ever lost, mutilated,
or destroyed, the Lead Borrower shall execute a replacement thereof on behalf of
itself and the other Borrowers and deliver such replacement to the Agent.

        2.9    Payment of The Loan Account.
               (a)       The  Borrowers  may  repay  all or any  portion  of the
principal  balance of the Loan Account  from time to time until the  Termination
Date. Such payments shall be applied first to Base Margin Loans and only then to
Eurodollar Loans.
               (b)      The  Borrowers,  upon notice or demand from the Agent or
any  Lender,  shall  pay the Agent  that  amount,  from  time to time,  which is
necessary  so that the unpaid  balance of the Loan  Account  does not exceed the
Borrowing  Base.  Such payments  shall be applied first to Base Margin Loans and
only then to Eurodollar Loans.
               (c)      Unless  otherwise  instructed by the Lead Borrower,  the
Agent shall endeavor to cause those  application of payments (if any),  pursuant
to Sections 2.9(a) and 2.9(b) against  Eurodollar Loans then outstanding in such
manner as  results in the least  cost to the  Borrowers,  but shall not have any
affirmative  obligation  to do so nor any liability on account of its failure to
do so. The Lead  Borrower  may request the Agent to defer the  application  of a
payment to a Eurodollar Loan until the end of the applicable Eurodollar Interest
Period  and to hold  the  funds  allocated  for such  payment  as  interim  cash
collateral.  In no event  shall  action  or  inaction  by the Agent  excuse  the
Borrowers from any  indemnification  obligation under Section 2.9(e) unless such
action or  inaction  resulted  from the  Agent's  gross  negligence  or  willful
misconduct.

                                     - 40 -
<PAGE>

               (d)      The Borrowers shall repay the then entire unpaid balance
of the Loan Account and all other Liabilities on the Termination Date.
               (e)      Upon the  written  request of the Agent,  the  Borrowers
shall  indemnify each Lender and hold each Lender  harmless from and against any
loss, cost or expense (including loss of anticipated  profits) which such Lender
may sustain or incur (including,  without limitation,  by virtue of acceleration
after the occurrence of any Event of Default) as a consequence of the following:
                      (i)   Default  by  the  Borrowers   in   payment  of   the
        principal  amount of or any interest on any Eurodollar  Loan as and when
        due and  payable,  including  any  such  loss or  expense  arising  from
        interest or fees payable by such Lender to lenders of funds  obtained by
        it in order to maintain its Eurodollar Loans.
                      (ii)  Default by the  Borrowers  in making a borrowing  or
        conversion  after  the Lead  Borrower  has  given  (or is deemed to have
        given) a request for a  Revolving  Credit Loan or a request to convert a
        Revolving Credit Loan from one applicable interest rate to another.
                      (iii) The making of any  payment on a  Eurodollar  Loan or
        the  conversion  of any such Loan to a Base Margin 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 Lender to lenders of funds
        obtained by it in order to maintain any such Loans as "breakage fees".

        2.10   Interest Rates.
               (a)      Each Revolving  Credit Loan or advance  hereunder  shall
bear  interest at the Base Margin Rate  (determined  based on a 360 day year and
actual days elapsed) unless it is made as, or is converted to, a Eurodollar Loan
pursuant to Section 2.4 hereof..
               (b)        Each  Revolving   Credit  Loan  which  consists  of  a
Eurodollar   Loan  shall  bear  interest  at  the  applicable   Eurodollar  Rate
(determined  based on a 360 day year  and  actual  days  elapsed),  as  adjusted
pursuant to Section 2.10(e), below.

                                     - 41 -
<PAGE>

               (c)      The Lead Borrower  shall not select,  renew,  or convert
any interest rate for a Revolving Credit Loan such that, in addition to interest
at the Base Margin Rate, there are more than Six (6) Eurodollar Rates applicable
to the Revolving Credit Loans at any one time.
               (d)      The Borrowers  shall pay accrued and unpaid  interest on
each Revolving  Credit Loan in arrears on the applicable  Interest  Payment Date
therefor.  Following the  occurrence of any Event of Default (and whether or not
the Agent exercises the Agent's rights on account thereof), all Revolving Credit
Loans shall bear interest, at the option of the Agent or at the direction of the
SuperMajority  Lenders,  at a rate which is the  aggregate,  in the case of Base
Margin Loans,  of the then applicable Base Margin Rate plus two percent (2%) per
annum, and in the case of Eurodollar Loans, the then applicable  Eurodollar Rate
plus two percent (2%) per annum.
               (e)       Commencing with the first day of the fiscal month after
the  Agent's  receipt  of the  Borrowers'  annual  financial  statement  for the
Borrowers'  Fiscal Year 1999, the Eurodollar Margin and the Base Margin shall be
reset  monthly,  on the first day of each month,  based upon the Margin  Pricing
Grid set forth below.  If during any thirty (30) day period ending with the last
day of a given month,  Availability  on any five (5)  consecutive  Business Days
falls, in the case of Tier III Loans, below $35 Million,  or in the case of Tier
II Loans, below $15 Million,  the Eurodollar Margin and the Base Margin shall be
adjusted  downward  commencing  the  first  day  of  the  following  month.  The
Eurodollar  Margin and the Base Margin shall be reset upward on the first day of
a given month only if during the immediately  preceding  thirty (30) day period,
in the case of Loans priced at Tier II, Availability is $35 Million or more, and
in the case of Loans priced at Tier I, Availability is $15 Million or more.

                               MARGIN PRICING GRID
<TABLE>

  TIER      MINIMUM AVAILABILITY, FOR PRECEDING MONTH    EURODOLLAR MARGIN       BASE MARGIN
                                                           (BASIS POINTS)       (PERCENTAGE)
<S>         <C>                                          <C>                     <C>

    I      $15 Million or less                                  225                 0.50

   II      More than $15 Million, but less than $35             200                 0.25
           Million

   III     $35 Million or more                                  175                   0
</TABLE>

                                     - 42 -
<PAGE>

        2.11  Agent's  Fee. In addition to any other fee or expense  paid by the
Borrowers on account of the Revolving Credit,  the Borrowers shall pay the Agent
an AGENT'S FEE as provided in a separate fee letter of even date  herewith  from
the Agent to the Borrowers.

        2.12  Underwriting  Fee. In addition to any other fee or expense paid by
the Borrowers on account of the Revolving  Credit,  the Borrowers  shall pay the
Agent an UNDERWRITING FEE as provided in a separate fee letter of even date from
the Agent to the Borrowers.

        2.13 Line  (Unused) Fee. In addition to any other fee by the Borrower on
account  of the  Revolving  Credit,  the  Borrower  shall  pay the Agent for the
Pro-Rata  benefit of the Lenders a LINE  (UNUSED)  FEE in arrears,  on the first
Business Day of each calendar  quarter (and on the Termination  Date).  The Line
(Unused) Fee shall be equal to three tenths of one percent  (0.30%) per annum of
the average difference, during the quarter just ended (or such shorter period as
may  pertain  to the first such  payment  and to the  payment  being made on the
Termination  Date as to which no Line  (Unused) Fee shall  previously  have been
paid, between:
               (a)    the Loan Ceiling
                      and
               (b)    the aggregate of
                      (i)      the unpaid principal balance of the Loan Account.
                      Plus
                      (ii)     the  Stated Amount of all then outstanding L/C's.

        2.14  Early  Termination  Fee.  In the event that the  Termination  Date
occurs,  for any reason,  prior to November 30, 2000, the Borrower shall pay the
Agent, for the Pro-Rata benefit of the Lenders,  as an EARLY  TERMINATION FEE an
amount equal to one half of one percent  (0.5%) of the Loan Ceiling in effect as
of the date of this Agreement.

                                     - 43 -
<PAGE>

        2.15 Concerning Fees. The Borrowers shall not be entitled to any credit,
rebate or repayment of the Agent's Fee,  Underwriting  Fee,  Line  (Unused) Fee,
Early Termination Fee, or other fee previously earned by the Agent or any Lender
pursuant to this Agreement, notwithstanding any termination of this Agreement or
suspension or termination of the Agent's and any Lender's respective  obligation
to make loans and advances hereunder.

        2.16   Agent's and Lenders' Discretion.
               (a)      Each  reference in the Loan Documents to the exercise of
discretion  or the like by the  Agent or any  Lender  shall be to that  Person's
reasonable  exercise of its  judgment,  in good faith (which shall be rebuttably
presumed),  based upon that  Person's  consideration  of any such factor as that
Person,  taking into  account  information  of which that Person then has actual
knowledge, believes:
                      (i)    Would  reasonably  be  expected to affect the value
        of the  Collateral,  the  enforceability  of the  Agent's  security  and
        collateral interests therein, or the amount which the Agent would likely
        realize  therefrom  (taking  into  account  delays which may possibly be
        encountered  in the Agent's  realizing  upon the  Collateral  and likely
        Costs of Collection);
                      (ii)  Indicates  that any report or financial  information
        delivered to the Agent or any Lender by or on behalf of the Borrowers is
        incomplete,  inaccurate, or misleading in any material manner or was not
        prepared in accordance with the requirements of this Agreement;
                      (iii)  Reasonably  suggests that the Borrowers will become
        the subject of a bankruptcy or insolvency proceeding; or
                      (iv)   Constitutes a Suspension Event.
               (b)      In the  exercise  of such  judgment,  the Agent also may
take into account any of the following factors:
                      (i)    Those included  in, or tested  by, the  definitions
        of "Acceptable Inventory," "Acceptable L/C Inventory," "Acceptable
        In-Transit Inventory," "Retail," and "Cost";

                                     - 44 -
<PAGE>

                      (ii)   Changes to  the  current  financial  and   business
        climate of the industry in which the Borrowers  compete  (having  regard
        for the Borrowers' position in that industry);
                      (iii) Changes to general  macroeconomic  conditions  which
        have a material effect on the Borrowers' cost structure;
                      (iv)  Changes  reflecting seasonality  with respect to the
        Borrowers' Inventory and patterns of retail sales; and
                      (v)   Changes  in   such   other  factors   as  the  Agent
        determines to have a material  bearing on credit risks  associated  with
        the providing of loans and financial accommodations to the Borrowers.
               (c)      The burden of  establishing  the failure of the Agent or
any Lender to have acted in a  reasonable  manner in such  Person's  exercise of
discretion shall be the Borrowers'.

        2.17   Procedures For Issuance of L/C's.
               (a)      The Lead  Borrower  on behalf  of  itself  and the other
Borrowers may request that the Agent cause the issuance of L/C's for the account
of the  Borrowers.  Each such request shall be made in such a manner as may from
time to time be acceptable to the Agent.
               (b)      The Agent will endeavor to cause the issuance of any L/C
so requested by the Lead Borrower,  provided that , at the time that the request
is made,  the  Revolving  Credit has not been  suspended  as provided in Section
2.4(g) and:
                      (i)   The  aggregate  Stated   Amount  of  all L/C's  then
        outstanding (giving effect to the L/C whose issuance is requested), does
        not exceed Thirty Million Dollars ($30,000,000.00);
                      (ii)  The expiry of  the  requested L/C is  not later than
        the earlier  of thirty (30)  days  prior to  the  Maturity  Date  or the
        following:
                            (A)       For  standby  L/C's:  One  (1)  year  from
                            initial  issuance.
                            (B)       For documentary  L/C's: One hundred eighty
                            (180) days from issuance; and
                      (iii) The  Borrowing  Base would not be exceeded  upon the
        issuance of the requested L/C.

                                     - 45 -
<PAGE>

               (c)      The Lead Borrower  shall execute such  documentation  to
apply for and support the issuance of an L/C as may be required by the Issuer.
               (d)      There shall not be any  recourse to, nor  liability  of,
the Agent or any Lender on account of
                      (i)   Any  delay  or  refusal  by  an  Issuer  to issue an
        L/C;  or
                      (ii)  Any action or inaction of an Issuer on    account of
        or in respect   to, any L/C unless the Issuer is the Agent or Lender and
        such   action  or  inaction  is  determined  by  a  court  of  competent
        jurisdiction  to  constitute  gross  negligence  or  willful misconduct.
               (e)      The Borrowers  shall reimburse the Issuer for the amount
of any  drawing  honored  under an L/C on the same day on which such  drawing is
honored. The Agent, without the request of the Lead Borrower,  may advance under
the  Revolving  Credit (and charge to the Loan  Account) the amount of any draws
honored  under any L/C and any other  amount  for which the Lead  Borrower,  the
Issuer,  or any Lender  becomes  obligated  on account of, or in respect to, any
L/C, other than any such amounts incurred as a result of the gross negligence or
willful  misconduct  of the  Issuer  or such  Lender,  as the case may be.  Such
advance  shall be made whether or not a Suspension  Event is then  continuing or
such advance would result in Borrowing Base's being exceeded.  Such action shall
not constitute a waiver of the Agent's rights under Section 2.9(b) hereof.

        2.18   Fees For L/C's.
               (a)      The Lead  Borrower  on behalf  of  itself  and the other
Borrowers  shall pay to the Agent for the account of the Lenders,  on account of
each L/C procured by the Agent, a fee, as follows:
                      (i)   For   each   standby   L/C:  The   then   applicable
        Eurodollar Margin less twenty-five (25) basis points,  per annum, of the
        Stated Amount of such standby L/C, payable quarterly in arrears,  on the
        first day of each of the Lead Borrower's fiscal quarters.
                      (ii)  For  each  documentary  L/C's:  One and  one-quarter
        percent  (1.25%) per annum of the weighted  average of the Stated Amount
        of    such   documentary    L/C    outstanding    at    any  time during
        the   period    since   the   then   most   recent  payment of such fee,

                                     - 46 -
<PAGE>

 payable  quarterly in arrears,
        on the first day of each of the Lead Borrower's fiscal quarters,  and on
        the End Date.
                      (iii) Notwithstanding  Subsections  (i)  and (ii),  above,
        following the occurrence of any Event of Default (and whether or not the
        Agent exercises the Agent's rights on account thereof),  the above fees,
        at  the  option  of the  Agent  or the  direction  of the  SuperMajority
        Lenders,  shall be two percent (2%) per annum above the applicable rates
        above.
               (b)          In addition to the  fees to be  paid as  provided in
Subsection  2.18(a),  above, the Lead Borrower shall pay to the Agent (or to the
Issuer,  if so  requested  by  Agent),  on  demand,  all  issuance,  processing,
negotiation, amendment, and administrative fees and other amounts charged by the
Issuer on account of, or in respect to, any L/C.

        2.19   Concerning L/C's.
               (a)          None of the Issuer, the Issuer's correspondents,  or
any advising,  negotiating,  or  paying  bank  with  respect  to any  L/C  shall
be responsible in any way for:
                      (i)   The  performance  by  any beneficiary  under any L/C
        of that beneficiary's obligations to any Borrower.
                      (ii)  The  form,  sufficiency,  correctness,  genuineness,
        authority of any person signing, the falsification,  or the legal effect
        of, any documents  called for under any L/C if such documents  appear to
        be in order.
               (b)          The Issuer may honor, as complying with the terms of
any L/C and of any drawing  thereunder, any drafts or other documents  otherwise
in  order, but signed or  issued by  an  administrator,  executor,  conservator,
trustee  in  bankruptcy,  debtor  in  possession,  assignee  for  the benefit of
creditors, liquidator,   receiver,  or other legal  representative  of the party
authorized under such L/C to draw or issue such drafts or other documents.
               (c)          Unless  the  Lead  Borrower  on behalf of itself and
the  other Borrowers otherwise instructs any Issuer, in the particular instance,
the Lead Borrower hereby authorizes such Issuer to:
                      (i)   Select  an   advising   bank;
                      (ii)  Select a paying bank; and

                                     - 47 -
<PAGE>

                      (iii) Select a negotiating bank.
               (d)          All directions, correspondence, and funds  transfers
relating  to any L/C are at the risk of the  Borrowers.  The  Issuer  shall have
discharged the Issuer's  obligations  under any L/C or drawing  thereunder which
includes  payment  instructions  if the Issuer  initiates  the method of payment
called  for  thereby  (or  initiates  any  other  commercially   reasonable  and
comparable method).  None of the Agent, any Lender, or the Issuer shall have any
responsibility for any inaccuracy, interruption, error, or delay in transmission
or delivery by post,  telegraph or cable,  or for any inaccuracy of translation,
to the extent not caused by them.
               (e)          The Agent's, each Lender's, and the Issuer's rights,
powers,  privileges and immunities  specified in or arising under this Agreement
are in addition to any heretofore or at any time hereafter  otherwise created or
arising, whether by statute or rule of law or contract.
               (f)          Except  to the extent otherwise  expressly  provided
hereunder or agreed to in writing by the Issuer and the Borrowers,  the L/C will
be  governed  by the  Uniform  Customs and  Practice  for  Documentary  Credits,
International  Chamber of  Commerce,  Publication  No. 500,  and any  subsequent
revisions thereof.
               (g)          If  any  change  in  any  law,  executive  order  or
regulation, or  any  directive of any  administrative  or governmental authority
(whether or not having  the   force of law),  or in the  interpretation  thereof
by any court or administrative  or  governmental   authority  charged  with  the
administration thereof, shall either:
                      (i)   impose,  modify  or deem   applicable  any  reserve,
        special  deposit  or  similar  requirements  against  letters  of credit
        heretofore  or  hereafter  issued by any Issuer or with respect to which
        the Agent, any Lender or any Issuer has an obligation to lend or to fund
        drawings under any L/C; or
                      (ii)  impose  on  any  Issuer  any  other   condition   or
        requirements relating to any such letters of credit;
and the result of any event  referred to in Section  2.19(g)(i) or  2.19(g)(ii),
above, shall be to increase the cost to any Issuer of issuing or maintaining any
L/C (which  increase  in cost shall be the  result of such  Issuer's  reasonable
allocation  among   that   Issuer's   letter   of   credit  customers   of   the
aggregate    of   such    cost   increases   resulting   from   such    events),
then,   upon   demand   by   the  Agent  and   delivery   by   the   Agent    to
the   Lead   Borrower   of   a   certificate    of   an  officer of such  Issuer

                                    - 48 -
<PAGE>

describing   such  change  in  law, executive order,  regulation,  directive, or
interpretation thereof, its effect on such Issuer, and the basis for determining
such increased costs and their  allocation,  the Lead Borrower shall immediately
pay to the Agent,  from time to time as specified by the Agent,  such amounts as
shall be sufficient  to  compensate  such Issuer for such  increased  cost.  Any
Issuer's   determination   of  costs  incurred   under  Section   2.19(g)(i)  or
2.19(g)(ii),  above,  and the  allocation,  if any, of such costs among the Lead
Borrower  and other letter of credit  customers of such Issuer,  if done in good
faith and made on an  equitable  basis  and in  accordance  with such  officer's
certificate,  shall, in the absence of manifest error, be conclusive and binding
on the Borrowers.
               (h)    The  obligations  of the Lead Borrower on behalf of itself
and the other Borrowers under this Agreement with respect to L/C's are absolute,
unconditional,  and  irrevocable  and shall be performed  strictly in accordance
with the terms  hereof under all  circumstances  whatsoever  including,  without
limitation,  the  following:
                   (i)  Any lack of validity  or enforceability  or restriction,
restraint, or stay in the enforcement of this Agreement,  any L/C, or  any other
agreement or instrument  relating  thereto;
                  (ii) Any amendment or  waiver  of, or consent to the departure
from, any L/C;
                 (iii) The existence  of any claim,  set-off,  defense, or other
right which  the Lead Borrower may have at any time against the  beneficiary  of
any L/C; and
                  (iv) Any good faith honoring of a drawing under any L/C, which
drawing  possibly could have been dishonored based upon a strict construction of
the terms of the L/C.

        2.20   Changed Circumstances.
               (a)    The Agent may give the Lead Borrower notice that:
                      (i)   The Agent shall have determined in good faith (which
        determination    shall   be   final   and   conclusive)  on   any    day
        on   which   the  Eurodollar   rate  would   otherwise  be    set,  that
        by   reason  of  changes   arising   after the  date  of  this Agreement

                                     - 49 -
<PAGE>

        affecting the principal market  in Eurodollars in which BankBoston, N.A.
        participates, adequate and fair means do not exist for ascertaining such
        rate; or
                      (ii)  The Agent shall have determined in good faith (which
        determination shall be final and conclusive) that:
                            (A)       The  continuation of, or conversion of any
               Revolving  Credit  Loan to,  a  Eurodollar  Loan  has  been  made
               impracticable or unlawful by the occurrence of a contingency that
               materially  and  adversely   affects  the  applicable  market  or
               compliance  by the  Agent or any  Lender in good  faith  with any
               applicable law or governmental regulation,  guideline or order or
               interpretation  or change thereof by any  governmental  authority
               charged with the interpretation or administration thereof or with
               any  request  or  directive  of any such  governmental  authority
               (whether or not having the force of law); or
                            (B)       The  indices on which the  interest  rates
               for  Eurodollar  Loans are based  shall no longer  represent  the
               effective  cost  to the  Agent  or any  Lender  for  U.S.  dollar
               deposits  in the  interbank  market  for  deposits  in  which  it
               regularly participates.
               (b) In the event that the Agent gives the Lead Borrower notice of
an occurrence  described  in Section 2.20(a), then, until the Agent notifies the
Lead Borrower that the circumstances giving rise to such notice no longer apply:
                      (i)   The  obligation  of the  Agent and of each Lender to
        make Eurodollar Loans of the type affected by such changed circumstances
        or to permit the Lead  Borrower to select the affected  interest rate as
        otherwise applicable to any Revolving Credit Loans shall be suspended.
                      (ii)  Any notice which the Lead Borrower  shall have given
        the Agent with respect to any Eurodollar  Loan, the time for action with
        respect to which has not  occurred  prior to the  Agent's  having  given
        notice pursuant to Section 2.20(a), shall be deemed at the option of the
        Agent not to have been given.
                      (iii) Subject to  the  provisions of Section  2.9(e),  the
        Lead Borrower may (and,  with respect to any event  described in Section
        2.20(a)(ii), shall)

                            (A)  cancel the  relevant  borrowing  or  conversion
        notice on the same date  the Lead  Borrower  was notified of such event;
        and
                            (B)  prepay or cause to be prepaid any then affected
        Eurodollar Loans.

                               - 50 -
<PAGE>

        2.21   Increased Costs/Taxes.
               (a)    If,  as a result  of any changes,  arising  after the date
of this  Agreement,  in any  requirement  of law,  or of the  interpretation  or
application  thereof by any court or by any  governmental  or other authority or
entity charged with the administration thereof,  whether or not having the force
of law, which:
                      (i)   subjects  any  Lender  to  any  taxes or changes the
        basis of taxation,  or  increases  any  existing  taxes,  on payments of
        principal,  interest or other  amounts  payable by the  Borrowers to the
        Agent or any Lender under this  Agreement  except for taxes on the Agent
        or  any  Lender's   overall  net  income  or  capital   imposed  by  the
        jurisdiction  in which the Agent or that  Lender's  principal or lending
        offices are located,  or subjects any Lender to any stamp or documentary
        taxes and any other  excise or  property  taxes or  charges  or  similar
        levies  which arise from any payment  made under this  Agreement  or any
        other Loan  Document or from the  execution or delivery of, or otherwise
        with respect to, this Agreement or any other Loan Document;
                      (ii)  imposes, modifies or deems  applicable  any reserve,
        cash margin, special deposit or similar requirements against assets held
        by,  or  deposits  in or for the  account  of or loans  by or any  other
        acquisition of funds by the relevant funding office of any Lender;
                      (iii) imposes  on  any  Lender  any other  condition  with
        respect to any Loan Document; or
                      (iv)  imposes on any Lender a  requirement  to maintain or
        allocate capital in relation to the Liabilities;
and     the     result     of     any     of     the     foregoing,    in   such
Lender's    reasonable    opinion,   is    to   increase   the   cost   to  that
Lender   of   making  or   maintaining   any   loan,  advance    or    financial

                                     - 51 -
<PAGE>

accommodation  or  to  reduce  the  income  receivable by such Lender in respect
of any loan,  advance or financial  accommodation by an amount which such Lender
deems to be material,  then upon the Agent's giving written notice thereof, from
time to time, to the Lead Borrower (such notice to set out in reasonable  detail
the facts giving rise to and a summary  calculation  of such  increased  cost or
reduced  income),  the Lead Borrower on behalf of itself and the other Borrowers
shall forthwith pay to the Agent,  for the benefit of such Lender,  upon receipt
of such notice,  that amount which shall  compensate the subject Lender for such
additional cost or reduction in income.  Each Lender agrees, with respect to the
provisions   of  this  Section   2.21,  to  treat  the  Borrowers  in  a  manner
substantially similar to its other similarly situated customers
               (b)          Each   Lender   organized  under   the  laws  of   a
jurisdiction outside the United States, on or prior to the date of its execution
and  delivery  of  this  Agreement  in  the case  of each  Lender  listed on the
signature   pages  hereof  and  on  or prior  to the date on which it  becomes a
Lender in the case of each other Lender,  and  from time  to time  thereafter if
requested in writing by the Lead Borrower or the Agent (but only so long as such
Lender remains lawfully able to do so),  shall provide the Lead Borrower and the
Agent with (i) Internal  Revenue  Service  Form  1001 or 4224,  as  appropriate,
or any successor form prescribed by the  Internal  Revenue  Service,  certifying
that such Lender is entitled to benefits under an income tax treaty to which the
United States is a party that reduces the rate of  withholding  tax on  payments
of interest or certifying that the income receivable  pursuant to this Agreement
is effectively connected  with the conduct of a trade or business  in the United
States,  (ii) Internal  Revenue Service Form W-8 or W-9, as appropriate,  or any
successor form prescribed  by  the  Internal  Revenue  Service,  and  (iii)  any
other  for or  certificate  required  by any governmental  authority  (including
any certificate  required  by Sections 871(h) and 881(c) of the Internal Revenue
Code),  certifying  that such  Lender  is  entitled  to an  exemption  from or a
reduced  rate of tax on payments  pursuant to this Agreement or any of the other
Loan Documents.
               (c)          For  any  period  with respect to which a Lender has
failed  to  provide  the  Borrowers  and  the  Agent with the  appropriate  form
pursuant to Section 2.21(b)  (unless  such failure is due to a change in treaty,
law,  or  regulation  occurring  subsequent  to   the  date  on  which  a   form
originally  was  required   to   be   provided),  such   Lender  shall  not   be
entitled   to   indemnification  under  Section   2.21  (a)  with    respect  to
taxes  imposed   by   or   within   the   United   States;   provided,  however,
that   should   a    Lender  that  is   otherwise  exempt  from   or     subject
to   a   reduced  rate   of   withholding  tax   become subject to taxes because
of  its  failure  to   deliver  a   form   required   hereunder,  the  Borrowers

                                     - 52 -
<PAGE>

shall take   such   steps  as   such   Lender  shall   reasonably   request   to
assist such Lender to recover such taxes.
               (d)          If  the  Borrowers  are  required  to pay additional
amounts   to   or  for  the   account  of  any   Lender  or  Agent  pursuant  to
Section 2.21(a),  then such  Lender or the Agent  will  agree to use  reasonable
efforts to change the jurisdiction of its  applicable  lending  office  (meaning
the office by  which  Revolving  Credit  Loans  from  such  Lender  are made and
maintained)  so as to  eliminate or reduce any such additional payment which may
thereafter accrue.

        2.22   Lenders' Commitments.
               (a)          The obligations of each  Lender are several  and not
joint.  No Lender shall have any obligation to the Borrowers to make any loan or
advance under the Revolving Credit in excess of the lesser of:
                      (i)   that Lender's  Commitment  Percentage of the subject
        loan or advance or of Availability; and
                      (ii)  that Lender's  unused Dollar  Commitment
               (b)          No  Lender shall have  any liability to any Borrower
on  account of  the failure  of any  other Lender to provide any loan or advance
under  the Revolving  Credit nor any  obligation to make up any shortfall  which
may be created by such failure.
               (c)          The   Dollar  Commitments,  Commitment  Percentages,
and  identities of the  Lenders (but not the overall Commitment) may be changed,
from time to  time by the  reallocation  or  assignment  of  Dollar  Commitments
and  Commitment  Percentages  amongst  the  Lenders  or   with other Persons who
determine to become "Lenders", provided, however,
                      (i)   Unless  an  Event of Default has  occurred (in which
        event,  no consent of the Lead Borrower is required) any assignment to a
        Person not then a Lender shall be in an amount not less than $10,000,000
        and shall be subject to the prior  consent of the Lead  Borrower (not to
        be unreasonably withheld), which consent will be deemed given unless the
        Lead  Borrower  provides the Agent with written  objection not more than
        five (5)  Business  Days  after  the  Agent  shall  have  given the Lead
        Borrower written notice of such proposed assignment).

                                     - 53 -
<PAGE>

                      (ii)  Any such  assignment or  reallocation  shall be on a
        pro-rata  basis such that the ratio  (expressed as a percentage)  of the
        Dollar  Commitment  reallocated or assigned to any Person to the overall
        Dollar  Commitments  equals  the  Commitment   Percentage   assigned  or
        reallocated to such Person.
               (d)          Upon  written  notice  given the Lead  Borrower from
time to  time by the  Agent,  of any  assignment  or  allocation  referenced  in
Section 2.22(c):
                      (i)   The  Lead  Borrower,  on   behalf of itself  and the
        other Borrowers,  shall execute one or more replacement Revolving Credit
        Notes  to  reflect   such   changed   Dollar   Commitments,   Commitment
        Percentages,  and Lenders and shall deliver such  replacement  Revolving
        Credit Notes to the Agent (which  promptly  thereafter  shall cancel and
        deliver to the Lead  Borrower the  Revolving  Credit Notes so replaced),
        provided  however,  that in the event a  Revolving  Credit Note is to be
        exchanged following its acceleration or the entry of an order for relief
        under the Bankruptcy  Code with respect to the Borrowers,  the Agent, in
        lieu of  causing  the Lead  Borrower,  on behalf of itself and the other
        Borrowers,  to execute one or more new Revolving Credit Notes, may issue
        a certificate confirming the resulting Dollar Commitments and Commitment
        Percentages.
                      (ii)  Such change  shall be  effective from the  effective
        date  specified in such written  notice and any Person added as a Lender
        shall have all rights and privileges of a Lender hereunder thereafter as
        if such Person had been a signatory to this Agreement and any other Loan
        Document to which the Lenders are  signatories and any person removed as
        a  Lender  shall   thereafter   be  relieved  of  any   obligations   or
        responsibilities of a Lender hereunder and thereunder.

        2.23   Concerning Joint and Several Liability of the Borrowers.

               (a)          Each   Borrower  is  accepting  joint  and   several
liability hereunder and under the other Loan Documents in  consideration  of the
financial accommodations  to be provided by the Agent and the Lenders under this
Agreement  and   the  Loan  Documents, for  the  mutual  benefit,  directly  and
indirectly, of each Borrower and in  consideration  of the undertakings  of each
other  Borrower to accept joint and several liability for the Liabilities.

                                     - 54 -
<PAGE>

               (b)          Each    Borrower,  jointly   and  severally,  hereby
irrevocably  and  unconditionally accepts,  not  merely  as  a  surety  but as a
co-debtor,  joint  and several liability with the other Borrowers,  with respect
to the payment and   performance of all  Liabilities,  it being the intention of
the  parties  that  all the   Liabilities  shall  be   the  joint   and  several
Liabilities  of each of the Borrowers without preferences or distinction.
               (c)          If and to the extent that any of the  Borrowers fail
to make any payment  with respect to any of  the  Liabilities as and when due or
to  perform  any of the  Liabilities in accordance with the terms  thereof, then
in each such event the other  Borrowers  will make such payment with respect to,
or perform, such Liability.
               (d)          The  Liabilities  of  each   Borrower  under    this
Agreement  constitute  full recourse  Liabilities of such Borrowers  enforceable
against  such  Borrowers to  the  full extent of  its   properties  and  assets,
irrespective  of   the   validity,   regularity,   or   enforceability  of  this
Agreement  or  any  other circumstance whatsoever.
               (e)          Except  as  otherwise  expressly  provided  in  this
Agreement,  each Borrower other than the Lead Borrower hereby (without prejudice
to its status as Borrower and for the purposes of providing for the  eventuality
that,  contrary  to the  terms  of this  Agreement,  it is  held  by a court  or
arbitrator  to be a  guarantor)  waives  notice of  acceptance  of its joint and
several  liability,  notice  of any  Revolving  Credit  Loans  made  under  this
Agreement, notice of any action at any time taken or omitted by the Agent or the
Lenders under or in respect of any of the  Liabilities,  and  generally,  to the
extent permitted by applicable law, all demands,  notices and other  formalities
of every kind in connection with this Agreement.
               (f)          Each  Borrower other than the Lead  Borrower  hereby
(without  prejudice  to its status as Borrower and for the purposes of providing
for   the   eventuality   that,  contrary   to   the   terms  of this Agreement,
it   is   held   by   a    court    or    arbitrator   to    be   a   guarantor)
assents   to,   and   waives  notice    of,    any   extension  or  postponement
of   the   time   for   the   payment   of   any    of  the   Liabilities,   the
acceptance    of     any    payment   of    any   of   the    Liabilities,   the
acceptance   of    any    partial   payment   thereon,   any    waiver,  consent
or   other   action   or   acquiescence   by    the   Agent   or  the    Lenders
at    any    time   or    times  in   respect  of  any   default   by  any other
Borrower  in   the   performance   or   satisfaction  of   any   term, covenant,
condition   or   provision  of  this  Agreement,  any  and all other indulgences
whatsoever by the Agent or the Lenders in respect of any of the Liabilities, and

                                     - 55 -
<PAGE>

the taking, addition,  substitution or release, in whole or in part, at any time
or  times,  of  any  security  for  any  of the  Liabilities  or  the  addition,
substitution  or release,  in whole or in part, of any other  Borrower.  Without
limiting the  generality of the  foregoing,  each  Borrower  other than the Lead
Borrower  (without  prejudice  to its status as Borrower and for the purposes of
providing for the eventuality that, contrary to the terms of this Agreement,  it
is held by a court or arbitrator to be a guarantor)  assents to any other action
or delay in acting  or  failure  to act on the part of the Agent or the  Lenders
with  respect to the  failure by the other  Borrowers  to comply with any of its
respective Liabilities,  including,  without limitation, any failure strictly or
diligently  to assert any right or to pursue any remedy or to comply  fully with
applicable  laws or  regulations  thereunder,  which  might  afford  grounds for
terminating,  discharging or relieving any Borrower,  in whole or in part,  from
any of its Liabilities.
               (g)          It is the  intention of each Borrower  that, so long
as any of the  Liabilities hereunder remain unsatisfied,  the Liabilities of the
Borrowers  shall not be discharged  except by  performance  and then only to the
extent of such performance. The Liabilities of any Borrower under this Agreement
shall  not  be  diminished  or  rendered   unenforceable   by  any  winding  up,
reorganization,  arrangement, liquidation, re-construction or similar proceeding
with  respect to any other  Borrower.  The joint and  several  liability  of the
Borrowers hereunder shall continue in full force and effect  notwithstanding any
absorption,  merger,  amalgamation  or any other change  whatsoever in the name,
membership,  constitution  or place of  formation of any of the  Borrowers,  the
Agent or any Lender.
               (h)          The  provisions  of  this Section  are  made for the
benefit  of the  Agent  and  the  Lenders  and  their  successors  and  assigns,
and may be enforced  in good  faith by them  from  time to time  against  any or
all  of  the  Borrowers as often  as  occasion  therefor may  arise  and without
requirement on the  part of the Agent or the  Lenders  first to  marshal  any of
their  claims or to exercise  any of their  rights  against  any other  Borrower
or to exhaust  any  remedies  available to them against any other Borrower or to
resort to  any  other source  or  means  of  obtaining  payment  of  any of  the
Liabilities  hereunder or to   elect any other  remedy.  The  provisions of this
Section shall remain in effect  until all  of  the  Liabilities  shall have been
paid in full or  otherwise  fully satisfied.  Without prejudice to the status of
any Borrower as Borrower, and for the purposes of providing for the  eventuality
that,   contrary  to  the  terms of  this  Agreement, it  is held  by a court or

                                     - 56 -
<PAGE>

arbitrator that any Borrower  other than  the Lead Borrower is a guarantor, each
Borrower, other the  Lead  Borrower, hereby  agrees that, if  at  any  time, any
payment,  or any part thereof,  made in respect  of any of the  Liabilities,  is
rescinded  or must  otherwise  be  restored  or returned   by the  Agent  or any
Lenders  upon  the  insolvency,  bankruptcy  or  reorganization,  of  any of the
Borrowers,  or otherwise,  the  provisions of  this  Section  will  forthwith be
reinstated in effect,  as though such payment had not been made.

                                     - 57 -
<PAGE>


        2.24  Lechters,   Inc.  as  Lead  Borrower.   The  Borrowers  for  their
convenience  have appointed the Lead Borrower as their agent for the purposes of
entering into the loan arrangements  contemplated  hereby,  requesting advances,
making representations, warranties and certifications, and distributing proceeds
of loans and generally  taking such other action as is  reasonably  necessary to
administer  the  Revolving  Credit  on behalf of the  Borrowers.  Each  Borrower
authorizes the Lead Borrower to execute and deliver,  on each Borrower's  behalf
and stead, the Revolving Credit Notes to each Lender,  the SwingLine Note to the
SwingLine  Lender,  this  Agreement and the other Loan Documents to evidence the
Liabilities  of the  Borrowers  to the Lenders  and to the Agent,  as well as to
execute such additional  documents as the Agent may require to further  evidence
the Revolving Credit or the granting of security  interests in the Collateral as
contemplated by this Agreement,  and for such purposes,  each Borrower  appoints
the Lead Borrower as its  attorney-in-fact  to do all things consistent with the
foregoing.  Any document executed by the Lead Borrower in connection herewith or
in furtherance of the Borrowers' undertakings  hereunder,  shall be binding upon
each Borrower as if such Borrower had executed  such  document,  and neither the
Agent nor the Lenders  shall have any  responsibility  to inquire as to the Lead
Borrower's  authority to act on behalf of the other Borrowers.  The authority of
the Lead Borrower to act on behalf of and to bind each Borrower,  shall continue
unless and until the Agent's actual receipt of written notice of the termination
of such authority,  which notice is signed by the respective  President or other
appropriate  corporate officer of any of the Borrowers  revoking such authority,
and  which  notice  shall  be  effective  only as to  loans,  advances  or other
accommodations  made more than thirty (30) days following the Agent's receipt of
such notice. In recognition of the role of the Lead Borrower,  the Agent and the
Lenders agree to  communicate  with, and send notices to, only the Lead Borrower
in connection with or relating to the Loan Documents.

ARTICLE III - CONDITIONS PRECEDENT:
        As a condition to the effectiveness of this Agreement, the establishment
of the Revolving Credit, the procurement of any L/C hereunder, and the making of
the first loan under the Revolving  Credit,  each of the documents  respectively
described  in  Sections   3.1   through   and  including 3.4 (each  in form  and
substance   satisfactory    to   the   Agent   and   the  Lenders)  shall   have

                                     - 58 -
<PAGE>

been  delivered  to  the  Agent, and  the conditions  respectively  described in
Sections 3.5 through and including 3.10, shall have been satisfied:

        3.1.   Corporate Due Diligence.
               (a)          A  Certificate  of  corporate  good  standing   with
respect to  each  Borrower  issued  by the  Secretary  of State of the  State in
which  that Borrower was organized.
               (b)          Certificates of qualification  to do  business  as a
foreign  corporation for any Borrowers  issued by the Secretary of State of each
State in which  such  Borrower's  conduct of  business  or  ownership  of assets
requires such qualification.
               (c)          A  certificate  of    each   Borrower's   respective
Secretary as to the due adoption and continued effectiveness  of, each corporate
resolution  adopted  in  connection   with  the    establishment   of  the  loan
arrangement  contemplated  by  the  Loan  Documents  and  attesting  to the true
signatures   of  each  Person  authorized  as  a  signatory  to  any of the Loan
Documents,  such certificate to set forth the text of each such resolution in an
attachment thereto.

        3.2.   Opinion.  An opinion of  counsel  to  the  Borrowers  in form and
substance satisfactory to the Agent.

        3.3.   Additional Documents.  Such  additional instruments and documents
as  the  Agent or  its counsel  reasonably may require or request, including the
following:
               (a)          Those documents required to be  provided pursuant to
Section 7.1 (which relates to deposit accounts) and 7.2 (which relates to credit
card accounts).
               (b)          Pledges  by  each of  the  Borrowers  of the capital
stock of  any  other  Borrower  which  the pledgor  Borrower holds,  including a
pledge  by  the Parent of the stock it holds in all of its Subsidiaries,  in the
form of Exhibit 3.3(1).
               (c)          Revolving  Credit  Notes,  payable to each Lender in
the amount of such Lender's Dollar Commitment,  and the SwingLine Note,  payable
to the SwingLine Lender , in the amount of the SwingLine Loan Ceiling.

                                     - 59 -
<PAGE>

        3.4.  Officers'  Certificates.  Certificates  executed by the President,
Chief Executive  Officer or the Chief Financial Officer of the Lead Borrower and
stating that the  representations  and  warranties  made by the Borrowers to the
Agent and the Lenders in the Loan Documents are true and complete as of the date
of such  certificate,  and that no event has occurred which is or which,  solely
with the giving of notice or  passage  of time (or  both),  would be an Event of
Default.

        3.5. Representations and Warranties. Each of the representations made by
or on behalf of the  Borrowers  in this  Agreement  or in any of the other  Loan
Documents or in any other report,  statement,  document, or paper provided by or
on behalf of the Borrowers shall be true and complete as of the date as of which
such representation or warranty was made.

        3.6. Minimum Excess Availability.  After giving effect to the first loan
under the Revolving  Credit,  any charges to the Loan Account made in connection
with the establishment of the credit facility  contemplated hereby, and L/C's to
be issued at, or  immediately  subsequent to, such  establishment,  Availability
shall be not less than $100 Million, which amount shall include for the purposes
of this Section 3.6, cash and marketable securities.

        3.7. All Fees and Expenses Paid.  All fees due at or  immediately  after
the first loan under the Revolving Credit and all costs and expenses incurred by
the  Agent  in  connection  with  the   establishment  of  the  credit  facility
contemplated  hereby  (including  the fees and expenses of counsel to the Agent)
shall have been paid.

        3.8.  No Event of Default. No Event of Default shall then be continuing.

        3.9. No Adverse Change. No event shall have occurred or failed to occur,
which  occurrence or failure has had or would have a Materially  Adverse  Effect
upon the  Borrower's  financial  condition  when  compared  with such  financial
condition at October 2, 1999.

                                     - 60 -
<PAGE>

No document shall be deemed  delivered to the Agent or any Lender until received
and  accepted by the Agent at its head office in Boston,  Massachusetts,  except
for such  documents as are executed and delivered to the Agent at the closing of
the transaction  contemplated hereby. Under no circumstances will this Agreement
take effect until executed and accepted by the Agent at such head office.

        3.10. Delivery of Notices.  The (Borrowers) shall have complied with the
provisions of Sections 7.1(b) and 7.2(b), below.

ARTICLE IV - GENERAL REPRESENTATIONS, COVENANTS AND WARRANTIES:
        To induce each Lender to  establish  the loan  arrangement  contemplated
herein and to make loans and  advances and to provide  financial  accommodations
under the  Revolving  Credit  (each of which  loans shall be deemed to have been
made  in  reliance   thereupon)  the   Borrowers,   in  addition  to  all  other
representations,  warranties,  and covenants  made by the Borrowers in any other
Loan Document, represent, warrant, and covenant as follows:

        4.1.  Payment and Performance of Liabilities.  The Borrowers  shall, and
hereby  authorize the Lead Borrower on their behalf to pay each  Liability  when
due (or when demanded if payable on demand) and shall promptly,  punctually, and
faithfully perform each other Liability.

        4.2.   Due Organization - Corporate Authorization - No Conflicts.
               (a)          Each  Borrower  presently  is  and  shall (except as
otherwise  permitted  by  this  Agreement  in  connection  with  (i)   permitted
store closings, (ii)  restructurings of the  manner in which the Borrowers carry
on  their  business,  and (iii)  mergers  between  or  among  Related  Entities)
hereafter  remain in good standing as a corporation  organized  under  the  laws
of the State of its  incorporation  indicated  in EXHIBIT 4.2 to this  Agreement
and shall  hereafter remain duly qualified  and in good  standing in every other
State in which,  by  reason of the nature or location of that Borrower's  assets
or operation of that Borrower's business, such qualification is necessary.
               (b)          Each  Related  Entity  is  listed  on  EXHIBIT  4.2,
annexed    hereto.    Each   Related  Entity   is   and    shall   (except    as
otherwise    permitted    by    Agreement    (i)    in    connection        with

                                     - 61 -
<PAGE>

permitted   store closings,  (ii)  restructurings  of  the  manner in which they
carry on their business,  and (iii) mergers  between or among Related  Entities)
hereafter remain in good standing in the State in which  incorporated and is and
shall  hereafter  remain duly qualified as a foreign  corporation in every other
State in which,  by  reason of that  entity's  assets or the  operation  of such
entity's  business,  such  qualification  is necessary.  The Lead Borrower shall
provide the Agent with prior written notice of any entity's  becoming or ceasing
to be a Related Entity.
               (c)          No  Borrower  shall change  State  of  incorporation
without prior notification to Agent.
               (d)          Each  Borrower  has all  requisite  corporate  power
to execute  and  deliver all Loan  Documents to  which it is a party and has and
will hereafter, subject to Section 4.2(a), retain all requisite  corporate power
to perform all Liabilities.
               (e)          The  execution and delivery of each Loan Document by
each  Borrower,  or by the Lead  Borrower on behalf of each  Borrower  that is a
party  thereto,  such Borrower's  consummation of the transactions  contemplated
by such  Loan Document  (including, without limitation, the creation of security
interests  by such Borrower as contemplated hereby), such Borrower's performance
under such  Loan Document, the borrowings hereunder, and the use of the proceeds
thereof:
                      (i)   Have   been   duly   authorized  by   all  necessary
        corporate action on the part of such Borrower;
                      (ii)  Do not, and will  not,  contravene  in any  material
        respect any Requirement of Law or obligation of such Borrower; and
                      (iii) Will not result in the creation or imposition of, or
        the obligation to create or impose,  any Encumbrance  upon any assets of
        such Borrower  pursuant to any  Requirement of Law or obligation of such
        Borrower, except pursuant to the Loan Documents.
               (f)          The  Loan  Documents  have  been   duly executed and
delivered  by the  Lead  Borrower  on  behalf of itself and the other  Borrowers
and are the legal, valid and binding  obligations of the Borrowers,  enforceable
against the  Borrowers  in accordance  with  their respective  terms,  except as
enforceability  may be limited by bankruptcy, insolvency, or other laws relating
to or affecting generally the  enforcement  of  creditors'  rights or by general

                                     - 62 -
<PAGE>

principles of equity  (regardless of whether such principles are considered in a
proceeding at law or in equity).

        4.3.   Trade Names.
               (a)    EXHIBIT 4.3, annexed hereto, is a listing of:
                      (i)   All  names  under  which  each  Borrower  has   ever
        conducted its business and
                      (ii)  All entities and/or  persons with whom each Borrower
        ever consolidated or merged, or from whom each Borrower ever acquired in
        a  single   transaction   or  in  a  series  of   related   transactions
        substantially all of such entity's or person's assets.
               (b)          No  Borrower  will  change  its  name or conduct its
business under any name not listed on EXHIBIT 4.3 or conduct  its  business in a
state in which that Borrower does not presently conduct its business except:
                      (i)   upon  not  less  than  ten  (10)  days    subsequent
        written notice (with reasonable particularity) to the Agent; and
                      (ii)  in compliance with all other provisions of this
        Agreement.

        4.4.   Infrastructure.
               (a)          The Borrowers have and  will maintain  a  sufficient
infrastructure  to  conduct  their  business,  without  experiencing  a Material
Adverse Effect.
               (b)          Each  Borrower owns and  possesses, or has the right
to use (and will hereafter own, possess, or have such right to use) all patents,
industrial designs,  trademarks, trade names, trade styles, brand names, service
marks, logos, copyrights, trade secrets, know-how, confidential information, and
other intellectual or proprietary property of any third Person necessary for the
Borrowers'  conduct of the  Borrowers'  business,  except  where the  failure to
possess such  intellectual or proprietary  information  will not have a Material
Adverse Effect.
               (c)          The  conduct  by  the  Borrowers  of  the Borrowers'
business  does  not  presently  infringe (nor  will  the  Borrowers  conduct its
business in the  future  so  as  to infringe) the patents,  industrial  designs,
trademarks,   trade    names,   trade   styles,  brand  names,  service   marks,

                                     - 63 -
<PAGE>

logos,   copyrights,  trade  secrets,  know-how,  confidential  information,  or
other  intellectual  or proprietary  property of any third Person,  except where
such infringement does not have a Material Adverse Effect.

        4.5.   Year 2000 Compliance.
               (a)          The  Borrowers have developed  a  detailed  plan and
timetable  with respect to the  Borrowers'  operations  becoming fully Year 2000
Compliant as set forth on EXHIBIT 4.5 and have committed  adequate  resources to
execute that plan and to meet such timetable.  Borrowers shall have implemented,
and shall be fully Year 2000 Complaint  consistent  with such plan, on or before
December 15, 1999.
               (b)          Following  the  Borrowers' operations  becoming Year
2000  Compliant,  the  Borrowers will  not  suffer  or  permit  their operations
thereafter  to cease  to  be  Year  2000  Compliant  in any manner  which  might
reasonably  be expected to have a Material Adverse Effect.

        4.6.   Locations.
               (a)          TheCollateral, and the books, records, and papers of
Borrowers  pertaining thereto,  are kept and maintained solely at the Borrowers'
chief executive  offices and those locations which are listed on EXHIBIT 4.6(A),
which EXHIBIT includes, with respect to each such location, the name and address
of the landlord on the Lease which covers such location (or an  indication  that
the  Borrowers own the subject  location) and of all service  bureaus with which
any such records are maintained.
               (b)          The  Borrowers   shall  not  remove   any  of    the
Collateral  from  such  chief  executive  office or locations  listed on EXHIBIT
4.6(A) except to:
                      (i)   accomplish  sales,  returns,  and    transfers    of
        Inventory in the ordinary course of business; or
                      (ii) move Inventory from one such location to another such
        location;
                      (iii) utilize  such  of the Collateral as is  removed from
        such locations in  the ordinary   course  of  business  (such  as  motor
                      vehicles); or
                      (iv)  close  or  open any  store  as  permitted by Section
        4.6(d) (ii) or (iii), respectively.

                                     - 64 -
<PAGE>

               (c)          the  Borrowers  shall use their  reasonable  efforts
to   provide   the   Agent  with   Landlord's  Waivers   or  subordinations,  in
substantially  the  form  annexed  hereto  as   Exhibit  4.6(c)(1)  for  each of
the  Borrower's  locations  in  any  of the Landlord  States,  provided  that no
Borrower  shall be  obligated  to pay any amount or to grant any concession to a
landlord  in  order  to  obtain  such   Waiver or  subordination.  The Agent may
establish an  Availability Reserve  for  each  of  such  locations  as to  which
such a  waiver  is not so   delivered,  which  Availability  Reserve  shall   be
reduced or  eliminated  upon delivery of a Waiver for such a location.
               (d)          The Borrowers will not:
                      (i)   Alter, modify, or  amend  any  Lease in any material
        respect in any manner  which would have a Material  Adverse  Effect upon
        the liquidation of Inventory.
                      (ii)  Close any location at which any Borrower  maintains,
        offers for sale,  or stores any of the  Collateral,  provided,  that the
        Borrowers may make the closures  contemplated by the Business Plan, plus
        up to thirty (30) additional closures per fiscal year.
                      (iii) Commit  to open or open any new location  except (A)
        in  connection with  the relocation of a  retail location of a Borrower;
        or
                            (B)         the  opening  of new  retail  locations;
               provided, that  each of  the following requirements is satisfied:
                                    (I)       the Agent  shall be  provided  not
                      less  than  ten  (10)  days  prior  written  notice  (with
                      reasonable detail) of the proposed opening;
                                    (II)     Immediately  prior  to the earliest
                      day on  which  the  respective  Borrower  becomes  legally
                      obligated on account of its leasing of the  respective new
                      location,  no Event of  Default  shall  occur by reason of
                      such Borrower's so becoming obligated.
                                    (III) Either:
                                          (1) Such opening is  contemplated   by
                             the   Business   Plan,   provided,  however, up  to
                             ten (10) additional store openings not contemplated
                             by the  Business  Plan    shall be permitted in any
                             fiscal year; or

                                     - 65 -
<PAGE>

                                          (2) Availability for the ninety   (90)
                             days  prior   to   such   opening   was   not   and
                             immediately after such opening is not less than $15
                             Million and on a pro-forma  going forward basis for
                             the  twelve  (12)  month  period   following   such
                             opening,  as reflected in a projection  provided to
                             the Agent no later  than  seven  (7) days  prior to
                             such  opening  (and  prepared  based  on  the  same
                             methodology and with the same  assumptions as those
                             used in the  preparation of the Business Plan) will
                             not be less than $15 Million.
                                    (IV)        If the  location  is in a  State
                      listed on EXHIBIT 4.6(c),  the Lead Borrower shall use its
                      best efforts to provide the Agent with a Landlord's Waiver
                      or subordination (in the form described in Section 4.6(c))
                      for such location.
                                    (V)          The   Borrowers   shall  be  in
                      compliance  with Section 4.25 and shall have executed such
                      additional financing statements, on account of the subject
                      new location, as may then be required by Agent.
               (e)          Except  as  otherwise  disclosed  pursuant  to,   or
permitted  by, this Section 4.6 and except for goods in the control of a customs
broker who  has entered into a Customs Brokers  Agreement,  no tangible personal
property  of   the  Borrowers  having  a  cost  in  excess  of $1 Million in the
aggregate is in the  care or custody of, or stored or  entrusted  with, a bailee
or other third party  and  none  having  a  cost in  excess of $1 Million  shall
hereafter be placed under such care, custody, storage, or entrustment.

        4.7.   Title to Assets.
               (a)          The Borrowers are, and shall hereafter remain,  the
owners of the Collateral free and clear of all Encumbrances other than Permitted
Encumbrances.
               (b)          The  Borrowers do  not and shall not have possession
of any property on consignment to the  Borrowers  having a value in excess of $5
Million in the aggregate,  at any one time, other than pursuant to a consignment
in respect of which either:

                                     - 66 -
<PAGE>

                      (i)   no  financing   statement   has    been   filed   by
        consignor or other action taken by consignor under the UCC to perfect or
        protect its interest in the consigned  goods against the claims of third
        party secured creditors; or
                      (ii)  an  intercreditor  agreement  (in a form  reasonably
        satisfactory  to the Agent) between the consignor and the Agent has been
        executed.

        4.8.   Indebtedness.
               (a)          The Borrowers do  not and  shall  not hereafter have
any Indebtedness with the exceptions of:
                      (i)   Any  Indebtedness  to    the    Lenders;
                      (ii)  The Indebtedness (if  any) listed  on EXHIBIT  4.8;.
                      (iii) Indebtedness  secured  by  purchase   money security
        interests not otherwise  described  in  this  Section  4.8  and  Capital
        Leases  for  the   acquisition  of  Equipment  not exceeding $10 Million
        outstanding  at any one time;
                      (iv)  The 5.00% Notes and any Indebtedness  in  connection
        with the  refinancing  of the 5.00% Notes as  permitted  by Section 4.9,
        plus, in the event such  refinancing  is for an amount greater than such
        Indebtedness up to an additional $35 Million;
                      (v)   Indebtedness,  not  to  exceed $5,000,000 at any one
        time  outstanding,  which is not  otherwise  described  in this  Section
        4.8(a) and is not otherwise prohibited by this Agreement; and
                      (vi)  Letters of credit  issued by Persons  other than the
        Lenders  secured  by  Inventory  purchased  with such  letters of credit
        (which  Inventory shall not constitute  Acceptable  Inventory so long as
        any  reimbursement  obligation  remains  with respect to such letters of
        credit).
               (b)          The Borrowers shall not permit more than 20% of that
portion of the  aggregate  of their  Indebtedness  for the  purchase of goods or
services  which is not the subject of  reasonable  dispute to remain unpaid more
than 45 days beyond then current trade terms provided to the subject Borrower by
the supplier of such goods and services.

                                     - 67 -
<PAGE>

        4.9       Repayment of 5.00% Notes.  No later than sixty (60) days prior
to the stated  maturity of the 5.00% Notes,  the Parent shall  furnish the Agent
with either a pro forma  balance  sheet  showing  compliance  with  Section 4.20
hereof or a commitment  or a plan to repay such Notes by  refinancing  as of the
stated maturity thereof pursuant to terms which are satisfactory to the Agent in
its  reasonable   discretion   with  respect  to  tenor  and  lien  and  payment
subordination, as evidenced by its written consent thereto.

        4.10.  Insurance Policies.
               (a)          EXHIBIT 4.10 is a schedule of all insurance policies
owned by the Borrowers or under which the Borrowers are the named insured.  Each
of such  policies  that is  material  is in full force and  effect.  Neither the
issuer of any such policy nor the  Borrowers  are in default or violation of any
material policy.
               (b)          The Borrowers shall have and  maintain at all  times
insurance  covering such risks, in such amounts,  containing such terms, in such
form, for such periods, and written by such companies as may be reasonable given
the nature and magnitude of the Borrower's  business and customary  practices in
such business. The Agent and the Lenders acknowledge that the coverage reflected
on  EXHIBIT  4.10  presently  satisfies  the  foregoing  requirements,  it being
recognized  by the  Borrowers,  the Agent and the  Lenders,  however,  that such
requirements  may  change  hereafter  to  reflect  changing  circumstances.  All
insurance  carried by the  Borrowers  shall provide for a minimum of thirty (30)
days' written notice of  cancellation  to the Agent and all such insurance which
covers the Collateral shall include an endorsement in favor of the Agent,  which
endorsement  shall  provide  that the  insurance,  to the extent of the  Agent's
interest therein, shall not be impaired or invalidated,  in whole or in part, by
reason of any act or neglect of the Borrowers or by the failure of the Borrowers
to comply with any  warranty  or  condition  of the policy.  In the event of the
failure by the Borrowers to maintain  insurance as required herein,  the Agent ,
at its  option,  may obtain  such  insurance,  provided,  however,  the  Agent's
obtaining of such  insurance  shall not constitute a cure or waiver of any Event
of  Default  occasioned  by the  Borrowers'  failure  to  have  maintained  such
insurance.  The Lead Borrower shall furnish to the Agent  certificates  or other
evidence  satisfactory  to the Agent  regarding the insurance  maintained by the
Borrowers.

                                     - 68 -
<PAGE>

               (c)          The  Lead  Borrower  shall advise  the Agent of each
claim in excess of $500,000.00 made by any Borrower or group of Borrowers  under
any policy of insurance which covers the Collateral and following the occurrence
of an Event of Default will  permit the  Agent,  at the  Agent's  option in each
instance,  to the exclusion of the Borrowers,  to conduct the adjustment of each
such claim.  The Borrowers  hereby  appoint the Agent,  effective  following the
occurrence of an Event of Default, as the Borrowers' attorney in fact to obtain,
adjust,  settle, and cancel any insurance  described in this Section 4.10 and to
endorse  in favor of the Agent any and all  drafts  and other  instruments  with
respect  to such  insurance.  The  within  appointment,  being  coupled  with an
interest,  is  irrevocable  until  this  Agreement  is  terminated  by a written
instrument  executed by a duly authorized officer of the Agent . The Agent shall
not be liable on account of any  exercise of such power of  attorney  except for
any exercise that constitutes gross negligence or willful  misconduct.  Prior to
the occurrence of an Event of Default the Borrowers may use the proceeds of such
insurance to purchase  Inventory or in the case of insurance proceeds from fixed
assets, to purchase replacement fixed assets or to retire related purchase money
Indebtedness.  Following  the  occurrence of an Event of Default or in the event
that the Borrowers do not use the proceeds for the above purposes, the Agent may
apply any proceeds of such  insurance  against the  Liabilities,  whether or not
such have matured, in the order of application provided for herein.

        4.11. Licenses. Each license,  distributorship,  franchise,  and similar
agreement issued to any of the Borrowers,  or to which any of the Borrowers is a
party, and which is material to the business of the Borrowers, taken as a whole,
is in full force and effect.  No Borrower  nor, to the Parent's  knowledge,  any
other party to any such license or agreement is in default or violation thereof,
where such  violation  would have a Material  Adverse  Effect.  No Borrower  has
received any notice or threat of  cancellation  of any such license or agreement
where such cancellation would have a Material Adverse Effect.

        4.12.  Leases.  EXHIBIT  4.12 is a schedule of all  presently  effective
Capital Leases.  Exhibit 4.6(a) includes a list of all other presently effective
Leases.  Each of such  Leases and  Capital  Leases is in full force and  effect.
Neither the  Borrowers  nor, to the Parent's  knowledge,  any other party to any
such   Leases or Capital  Leases  is in  default or violation of any ten (10) or

                                     - 69 -
<PAGE>

more  such  Leases  or  Capital  Leases and neither the Parent nor the Borrowers
have received any currently  pending notice or threats of  cancellation  of more
than ten (10) such Leases or Capital  Leases (or such lesser  number  where such
default or violation would have a Material Adverse Effect). The Borrowers hereby
authorize  the  Agent at any time and from  time to time to  contact  any of the
Borrowers'  landlords  in order  to  confirm  the  continued  compliance  by any
Borrower with the terms and conditions of the Lease(s) between such Borrower and
the relevant landlords and to discuss such issues,  concerning the such Borrower
occupancy under such Lease(s), as the Agent may determine.

        4.13.  Requirements  of Law. The Borrowers are in compliance  with,  and
shall hereafter comply with and use their respective assets in compliance,  with
all  material  Requirements  of Law. No Borrower  has received any notice of any
material  violation of any  Requirement of Law,  other than any such  violations
that have been cured or otherwise remedied.

        4.14.  Maintain Collateral. Each Borrower shall:
               (a)          Keep the  Collateral under its control in good order
and repair (ordinary reasonable wear and tear and insured casualty excepted);
               (b)          Not suffer or cause the waste or destruction  of any
material part of the Collateral;
               (c)          Not  use  any of  the Collateral in violation of any
policy of insurance thereon; and
               (d)          Subject to Section 4.14(e), below, not sell,  lease,
or otherwise dispose of any of the Collateral, except for:
                      (i)   The  sale  of  Inventory  in the ordinary  course of
                      business;
                      (ii)  The  turning  over  to the  Agent  of all   Receipts
        following the  occurrence  of  a Cash  Management Condition, as provided
        herein; and
                      (iii)  The sale, rollover, reinvestment, or liquidation of
        Permitted Investments.

                                     - 70 -
<PAGE>

               (e)          The Borrowers  may dispose of Collateral  outside of
the ordinary course of business as follows:
                      (i)   The    disposal   of    store   related   Collateral
        consisting of Inventory Equipment, and Fixtures in connection with store
        closures permitted pursuant to Section 4.6(d)(ii); and
                      (ii)  The  disposal  of  up  to  $10  Million  Dollars  of
        obsolete,  duplicate  or other  Inventory  (at Cost) and  Equipment  and
        Fixtures (net of accumulated  depreciation) in the aggregate during each
        calendar year during the term of the Agreement, that is not necessary or
        required for the operation of the Borrowers' business, taken as a whole,
        exclusive of such amounts referenced in Section 4.14(e)(i), above.

        4.15.  Pay Taxes.
               (a)          As of the date of  this   Agreement,  the  Borrowers
have  received  written  notice   from  the  Internal  Revenue  Service that the
Internal  Revenue   Service  has  completed  its  examination  of the Borrowers'
federal   income  tax  returns  for  all tax years  through  and   including the
Borrowers'  taxable year referenced on EXHIBIT 4.15, and that all  deficiencies,
assessments,  and other  amounts asserted as  a result of such examinations have
been fully paid, settled or  otherwise resolved. No  agreement  is extant  which
waives or extends any  statute  of  limitations  applicable  to the right of the
Internal  Revenue Service  to assert a  deficiency  or make any other  claim for
or in  respect  to federal income  taxes.  Except  as set forth on EXHIBIT 4.15,
no issue  has been  raised in  any such  examination  which,  by application  of
similar  principles,  reasonably could be expected to result in the assertion of
a deficiency for any fiscal year  open  for examination, assessment, or claim by
the Internal Revenue Service.
               (b)          As of  the date  of this  Agreement,  the  Borrowers
have paid all state and local income, excise,  sales,  and other taxes which are
due  and  for   which  the  Borrowers  are  liable  except,  as  referenced   on
EXHIBIT 4.15, and have filed all returns required with respect to such taxes .
               (c)          Except as  disclosed on EXHIBIT  4.15,  there are no
examinations of or with respect to the Borrower presently being conducted by the
Internal Revenue Service or any other taxing authority.

                                     - 71 -
<PAGE>

               (d)          The Borrowers  have,  and hereafter  shall:  pay, as
they  become  due and  payable,  all taxes and  unemployment  contributions  and
other  charges  of  any kind or nature levied,  assessed or claimed  against any
Borrower  or  the  Collateral  by  any   person  or  entity  whose  claim  could
result in an Encumbrance upon any asset of any  Borrower or by any  governmental
authority;  properly  exercise  any  trust  responsibilities  imposed  upon  the
Borrowers by reason  of  withholding from  employees'  pay  or by  reason of the
Borrower's  receipt  of sales  tax  or other  funds for the account of any third
party;  timely make all  contributions  and  other  payments  as may be required
pursuant to  any  Employee Benefit Plan  now  or  hereafter  established  by the
Borrowers; and timely file all tax and other returns and other reports with each
governmental authority with which the Borrowers are obligated to file, provided,
however,  any  Borrower  may  timely  contest  in  good faith and by appropriate
proceedings  any amount of the   type  described in this Section  4.15(d)  which
it is alleged to be obligated to pay,  but only if and for so long as no lien is
filed on any of the  Collateral  with respect to such taxes,  and adequate  cash
reserves have been set aside for the payment thereof.
               (e)          At  its  option,  the Agent may, but  shall  not  be
obligated to, pay any taxes,  unemployment contributions,  and any and all other
charges levied or assessed  upon the  Borrowers or the  Collateral by any person
or  entity  or  governmental  authority,  and  make any  contributions  or other
payments on  account of  the  any  Employee  Benefit  Plan  maintained  by   the
Borrowers  as  the  Agent,  in  the  Agent's  discretion,  may deem necessary or
desirable to protect, maintain, preserve, collect, or realize upon any or all of
the Collateral or the  value  thereof or any right or remedy pertaining thereto,
provided,  however, the Agent's  making of any such payment shall not constitute
a cure or waiver of any Event of Default occasioned by the Borrowers' failure to
have made such payment.

        4.16. No Margin Stock.  The   Borrowers  are not engaged in the business
of extending credit for the purpose of purchasing or carrying any margin   stock
(within the meaning of  Regulations U, T, and X of the Board of Governors of the
Federal  Reserve  System of the United  States).  No part of the proceeds of any
borrowing  hereunder  will be used at any time to  purchase  or  carry  any such
margin  stock or to extend  credit to others for the  purpose of  purchasing  or

                                     - 72 -
<PAGE>

carrying  any such margin  stock other than stock of the Parent,  or any Related
Entity or as otherwise expressly permitted in Section 4.20.

        4.17. ERISA.  Neither the Borrowers nor any ERISA Affiliate shall in any
manner such as would have a Material  Adverse Effect,  or could result in a lien
being imposed upon any material assets of the Borrowers:
               (a)          Violate   or   fail to  be  in  compliance  with any
Employee Benefit Plan maintained by the Borrowers,
               (b)          Fail timely to file all reports and filings required
by ERISA to be filed by the Borrowers;
               (c)          Engage  in   any   "prohibited   transactions"    or
"reportable events" (respectively as described in ERISA);
               (d)          Engage  in,  or commit,  any act that  would  permit
the imposition of a tax or penalty upon the Borrowers pursuant to ERISA;.
               (e)          Accumulate any material  funding  deficiency  within
the meaning of ERISA;
               (f)          Terminate  any  Employee  Benefit  Plan  in a manner
that would   permit a  lien to  be imposed  upon any assets of the  Borrowers on
account thereof pursuant to ERISA; or
               (g)          Incur  withdrawal liability  under Title IV of ERISA
in  connection  with  any  Employee  Benefit Plan  which is a multiemployer plan
within the meaning of Section 4001(a) of ERISA.

        4.18.  Hazardous Materials.
               (a)          The Borrowers have never:
                      (i)   Been  legally   responsible  for  any    release  or
        threat  of  release  of  any   Hazardous   Material   where  such  legal
        responsibility would have a Material Adverse Effect.
                      (ii)  Received  notification  of any  release or threat of
        release of any Hazardous  Material  from any site or vessel  occupied or
        operated   by   the   Borrowers   and/or   of   the  incurrence  of  any
        expense    or   loss   in  connection with the assessment,  containment,

                                     - 73 -
<PAGE>

        or  removal  of  any  release  or  threat   of release of any  Hazardous
        Material  from any such   site or vessel,  to the extent such release or
        incurrence  would have a  Material Adverse Effect.
               (b)          Unless their failure  to act as set forth in (i) and
(ii) below would not have a Material Adverse Effect, the Borrowers shall (and in
any event shall use their best efforts to):
                      (i)   Dispose of any Hazardous Material only in compliance
        with all Environmental Laws; and
                      (ii)  Not  store  any  Hazardous  Material  on any site or
        vessel  occupied or  operated  by the  Borrowers  and not  transport  or
        arrange for the transport of any Hazardous Material, unless such storage
        or transport is in the ordinary course of the Borrowers' business and is
        in compliance with all Environmental Laws.
               (c)          The   Lead  Borrower  shall  provide the  Agent with
written notice upon obtaining knowledge that any governmental authority or other
Person  has  incurred  any expense or suffered any loss for which the  Borrowers
would be liable  in  connection with the  assessment,  containment,  or  removal
of any Hazardous  Material,  if  Borrowers' liability  for  such expense or loss
would have a Material Adverse Effect.

        4.19.  Litigation.  Except as  described in EXHIBIT  4.19,  there is not
presently  pending  or  threatened   against  any  Borrower  any  suit,  action,
proceeding,  or investigation which, if determined adversely to such Borrower or
the Borrowers, would have a Material Adverse Effect.

        4.20.  Dividends, Investments, Repurchases and Debt Retirement.
               (a)    The Borrowers shall not:
                      (i)   Pay   any   cash   dividend   or  make   any   other
        distribution  in respect of any class of the  Borrowers'  capital  stock
        other than  dividends by the  Subsidiaries  to the Parent and  scheduled
        payments of preferred dividends by the Parent.
                      (ii) Except for  Permitted  Repurchases,  redeem,  retire,
        purchase,  or acquire any of the Parent's  capital stock,  or any of the
        Parent's securities.
                      (iii)  Invest   in     or    purchase   any    stock    or
        securities   or   rights   to   purchase   any   stock   or   securities
        of   any  corporation  or  other   entity    other     than    Permitted

                                     - 74 -
<PAGE>

        Investments, provided  that,  the  Borrower  may  invest in Internet and
        other ventures that may provide  opportunities to  expand or improve the
        Borrowers' business so long as in the case of such investments:

                             (A)      The Borrowers total investment (which term
               shall include loans) in such  corporations or other entities does
               not exceed $10  million  in the  aggregate  over the term of this
               Agreement,  subject to the same conditions  (with respect to such
               investment)  as are  applicable to Permitted  Repurchases or Debt
               Retirement below in 4.20(b)(i) (A), (B), and (C).
                             (B)       Any  stock  issued  to the  Borrowers  by
               reason of such investment is pledged to the Agent for the ratable
               benefit of the Lenders.
                             (C)        No   Inventory   of  the   Borrowers  is
               commingled  with any Inventory of such  corporations or entities,
               and to the extent that the  Borrowers  sell any Inventory to such
               corporations  or entities,  such sale or sales are (i) to fulfill
               actual customer orders received by such  corporation or entities,
               (ii) on no more than sixty (60) day payment  terms or ninety (90)
               day seasonal terms (during the period October 1 through  December
               31) as the  Agent  may  agree  in its sole  discretion,  (iii) on
               arms-length  terms and for fair value;  (iv) in the  aggregate at
               any time no more than $2 Million on an open account basis, unless
               the Agent in its sole  discretion  approves  authorizes a greater
               amount,  not to  exceed $5  Million;  and (v)  excluded  from the
               Borrowing   Base,   so  that  the   Inventory   shipped  to  such
               corporations  or  entities,   shall  not  be  deemed   Acceptable
               Inventory.
                      (iv)  Merge or  consolidate  or be merged or  consolidated
        with or into any other  corporation or other entity (other than with any
        other Borrower,  in which case Business Days prior notice shall be given
        to Agent).
                      (v)  Consolidate any of the Borrowers' operations with
        those of any other  corporation  or other  entity  (other  than with any
        other Borrower).
                      (vi)  Organize or create any Related  Entity,  without the
        prior  written  consent  of  the  Agent,  which  consent  shall  not  be
        unreasonably withheld; provided that the Parent may establish additional
        Subsidiaries  to own and operate  store  locations  and make  additional
        investments in Subsidiaries,  so long as each such Subsidiary  becomes a

                                     - 75 -
<PAGE>

        Borrower or guarantor of the  Liabilities  and the other  conditions set
        forth below in clauses (A)-(C) below, are complied with:
                             (A)      The capital  stock of such  Subsidiary  is
               pledged to the Agent for the  ratable  benefit of the  Lenders as
               additional Collateral for the Liabilities;
                             (B)      Such  Subsidiary  executes  and delivers a
               guaranty of the Liabilities or becomes a Borrower; and
                             (C)      Such Subsidiary executes and delivers such
               documentation  as the Agent may  require  to grant  security  and
               mortgage  interests  in such  Subsidiary's  assets to secure  the
               Subsidiary's  guaranty  (or  obligation  as a  Borrower  for) the
               Liabilities.

               (b)      Subject to the  satisfaction  of each of the  conditions
included in this Section  4.20(b),  the Parent may  repurchase its capital stock
(such capital stock purchases not to exceed in the aggregate $10 Million for the
term of this Agreement) and replace,  refinance or retire in full or in part the
5.00% Notes  (which  transactions  are  referred to herein,  as  applicable,  as
"PERMITTED REPURCHASE OR DEBT RETIREMENT"):
                      (i)      On the date on which such Permitted Repurchase or
        Debt Retirement is to be effected:
                             (A)      No Event of Default  shall  have  occurred
               and none will occur by reason of the subject Permitted Repurchase
               or Debt Retirement;
                             (B)       Availability for the lesser of the number
               of days  since the date of this  Agreement  or  ninety  (90) days
               immediately prior to such Permitted Repurchase or Debt Retirement
               was not, and immediately after such Permitted  Repurchase or Debt
               Retirement shall not be, less than $25 Million;
                             (C)      Availability, on a pro forma going forward
               basis for 12 months  following such Permitted  Repurchase or Debt
               Retirement, as reflected on a projection provided to the Agent no
               later than seven (7) days prior to such  Permitted  Repurchase or
               Debt Retirement  (and prepared based on the same  methodology and
               with the same assumptions as those used in the preparation of the
               Business Plan) shall not be less than $25 Million;

                                     - 76 -
<PAGE>

                             (D)      Any  replacement  security  for the  5.00%
               Notes shall be  subordinated  junior to the  Liabilities on terms
               reasonably satisfactory to the Agent;
                             (E)        The   terms   and   conditions   of  any
               replacement   security   for  the  5.00%  Notes  are   reasonably
               satisfactory   to  the  Agent.   (c)  The  Borrowers   shall  not
               subordinate any debts or obligations owed to
the  Borrowers by any third party to any other debts owed by such third party to
any other Person.
               (d)      Except as contemplated by this Agreement,  the Borrowers
shall not acquire any assets other than in the ordinary course of the Borrowers'
business as conducted at the execution of this Agreement

        4.21.  Loans. The Borrowers shall not make any loans or advances to, nor
acquire the Indebtedness of, any Person,  provided,  however, that the foregoing
does not prohibit any of the following:
               (a)    Advance payments made to the  Borrowers'  suppliers in the
ordinary course;
               (b)       Advances  to or on behalf of the  Borrowers'  officers,
with  unsecured  advances  not to  exceed  in the  aggregate  at  any  one  time
$1,000,000.00;  and with secured advances (on such security as may be reasonably
satisfactory  to the  Agent)  not to  exceed  in the  aggregate  at any one time
$2,000,000 provided that Agent's approval of such security shall not be required
where an independent  appraisal confirms the fair market of the collateral to be
equal or greater than the amount of such advances.
               (c)       Advances to or on behalf of the  Borrowers'  employees,
and  salespersons  with  respect to  reasonable  expenses to be incurred by such
officers,  employees,  and salespersons for the benefit of the Borrowers,  which
expenses  are  properly  substantiated  by the person  seeking  such advance and
properly reimbursable by the Borrowers;
               (d)      Loans to any Related Entity,  Affiliate or other venture
permitted  pursuant to Section  4.20  (a)(iii)  which is not a Borrower,  not to
exceed    $10   Million  in   the  aggregate  when   combined  with   any  other
loans   or    investments  permitted   pursuant   to   Section  4.20  (a)  (iii)

                                     - 77 -
<PAGE>

outstanding   at   any  one time,  not otherwise  expressly  prohibited  herein,
provided  that no Event of Default  shall have  occurred  and none will occur by
reason of such loan.

        4.22. Protection of Assets. The Agent may in its discretion from time to
time  discharge any tax or  Encumbrance  on any of the  Collateral,  or take any
other action that the Agent may deem  necessary or desirable to repair,  insure,
maintain,  preserve,  collect, or realize upon any of the Collateral.  The Agent
shall not have any  obligation  to undertake any of the foregoing and shall have
no  liability  on account of any action so  undertaken  except  where there is a
specific  finding  in a  judicial  proceeding  (in  which  the  Agent has had an
opportunity  to be heard),  from which  finding no further  appeal is available,
that the Agent has  acted in bad faith or in a grossly  negligent  manner or has
engaged in willful misconduct.  The Borrowers shall pay to the Agent, on demand,
or the Agent, in its discretion,  may add to the Loan Account,  all amounts paid
or  incurred  by the Agent  pursuant  to this  section.  The  obligation  of the
Borrowers to pay such amounts is a Liability.

        4.23.  Line of Business.  The Borrowers shall not engage in any business
other  than the  business  in which  they are  currently  engaged  or a business
reasonably  related thereto (the conduct of which reasonably related business is
reflected in the Business Plan or otherwise permitted by this Agreement).

        4.24. Affiliate  Transactions.  Except as otherwise permitted hereunder,
the  Borrowers  shall not make any  payment,  nor give any value to any  Related
Entity except in the ordinary course of business or consistent with practices in
effect on October 1, 1999 and not otherwise prohibited under the Loan Documents,
provided  that no Event of Default  shall have  occurred  and none will occur by
reason thereof.

        4.25.  Additional Assurances.
               (a)      Except as set forth in Exhibit  4.25,  the Borrowers are
not the owner of, nor have they any interest in, any property or asset  material
or   necessary   to   their  business,  which  immediately upon the satisfaction
of    the    conditions  precedent  to    the  effectiveness   of   the   credit

                                     - 78 -
<PAGE>

facility  contemplated    hereby  (Article   3)  will  be  not be  subject  to a
perfected  security or other collateral  interest in favor of the Agent (subject
only to Permitted Encumbrances) to secure the Liabilities.
               (b)      The Borrowers  will not  hereafter  acquire any asset or
any interest in personal property which (if a security interest in such asset or
interest  may be  perfected  by filing  under  Article  9 of the  UCC),  is not,
immediately upon such acquisition, subject to such a perfected security or other
collateral  interest  in favor of the Agent to secure the  Liabilities  (subject
only to Permitted Encumbrances).
               (c)      The  Borrowers  shall  execute  and deliver to the Agent
such instruments,  documents, and papers, and shall do all such things from time
to time hereafter as the Agent may reasonably  request: to carry into effect the
provisions  and intent of this  Agreement;  to protect  and  perfect the Agent's
security interests in the Collateral; to comply with all applicable statutes and
laws;  and to facilitate  the  collection  of the  Receivables  Collateral.  The
Borrowers  shall execute all such  instruments as may be reasonably  required by
the Agent with  respect to the  recordation  and/or  perfection  of the security
interests created herein.
               (d)      The Borrowers  hereby designate the Agent as and for the
Borrowers' true and lawful attorney,  with full power of  substitution,  to sign
and file, where permitted by law any financing statements in order to perfect or
protect the Agent's security and other collateral interests in the Collateral.
               (e)      A carbon,  photographic,  or other  reproduction of this
Agreement or of any financing statement or other instrument executed pursuant to
this  Section  4.25  shall be  sufficient  for filing to  perfect  the  security
interests granted herein, where permitted by law.

        4.26.  Adequacy of Disclosure.
               (a)      All quarterly and annual financial  statements furnished
to the Agent and each Lender by the  Borrowers  have been prepared in accordance
with  GAAP  consistently   applied  (and  in  the  case  of  monthly  management
statements,  consistent with GAAP  methodology and  substantially  in accordance
with     GAAP)    and    present    fairly  in   all   material   respects   the
Consolidated    condition  of   the   Parent   and   its   Subsidiaries   at the
date(s)    thereof   and   the    Consolidated   results   of   operations   and
cash    flows    of   the    Parent    and    its   Subsidiaries    for      the

                                     - 79 -
<PAGE>

period(s)   covered.  There  has  been  no  change in the  financial  condition,
results of operations,  or cash flows of the Borrowers since the date(s) of such
financial  statements,  other than changes in the  ordinary  course of business,
which changes have not been materially  adverse,  either  individually or in the
aggregate.
               (b)      The Borrowers do not have any contingent  obligations or
obligations under any Lease or Capital Lease which are not noted in the Parent's
Consolidated  financial  statements and the notes thereto furnished to the Agent
and each Lender prior to the execution of this Agreement.
               (c)      No  document,  instrument,  agreement,  or paper  now or
hereafter  given the Agent or any Lender by or on behalf of the Borrowers or any
guarantor of the  Liabilities in connection with the execution of this Agreement
by the Agent and each Lender contains or will contain any untrue  statement of a
material fact or omits or will omit to state a material fact  necessary in order
to make the  statements  therein not  misleading.  There is no fact known to the
Borrowers  which has, or which, in the  foreseeable  future would  reasonably be
expected to have, a Material Adverse Effect.

        4.27 No  Restrictions  on  Liabilities.  No Borrower shall enter into or
become  subject  to,  directly  or  indirectly,  any  agreement  prohibiting  or
restricting in any manner (including,  without  limitation,  by way of covenant,
representation or event of default) any of the following:
               (a)        The   incurrence,   creation  or   assumption  of  the
Liabilities  or any  Encumbrances  in favor of the Agent on any  property of any
Borrower.
               (b)        The  granting  of  a  security  interest,  pledge,  or
Encumbrance in favor of the Agent and the Lenders on any asset of any Borrower.

        4.28 Other  Covenants.  No Borrower  shall  indirectly do or cause to be
done any act which, if done directly by such Borrower or Borrowers, would breach
any covenant contained in this Agreement.

ARTICLE V - FINANCIAL REPORTING AND PERFORMANCE COVENANTS:

                                     - 80 -
<PAGE>

        5.1.   Maintain Records.  The Borrowers shall:
               (a)      At all times,  keep proper  books of  account,  in which
full,  true,  and  accurate  entries  shall  be  made  of all of the  Borrowers'
transactions,  all in  accordance  with GAAP  applied  consistently  with  prior
periods to fairly reflect the financial  condition of the Borrowers at the close
of, and the results of their operations for, the fiscal periods in question.
               (b)      Timely provide the Agent with those  financial  reports,
statements, and schedules required by this Article V or otherwise, each of which
reports,  statements and schedules shall be prepared,  to the extent applicable,
in  accordance  with GAAP  applied  consistently  with  prior  periods to fairly
reflect  the  financial  condition  of the  Borrowers  at the close of,  and the
results of their operations for, the period(s) covered therein.
               (c)      At all  times,  keep  accurate  current  records  of the
Collateral  including,  without  limitation,  accurate current stock,  cost, and
sales records of their  Inventory,  accurately  and  sufficiently  itemizing and
describing  the kinds,  types,  and  quantities  of  Inventory  and the cost and
selling prices thereof.
               (d)        At all  times,  retain  independent  certified  public
accountants  who  are  reasonably  satisfactory  to the  Agent  and  who  are of
nationally  recognized  standing and request such accountants to fully cooperate
with,  and be  available  to,  the Agent to  discuss  the  Borrowers'  financial
performance,  financial condition,  operating results,  controls, and such other
matters  within the scope of the retention of such  accountants as may be raised
by the Agent.
               (e)      Not change  their  respective  fiscal  years or taxpayer
identification numbers without giving twenty (20) days notice.

        5.2.   Access to Records.
               (a)      The  Borrowers  shall  accord the Agent and the  Agent's
representatives  access from time to time as the Agent and such  representatives
may reasonably require to all properties owned by or over which any Borrower has
control. The Agent and the Agent's representatives shall have the right, and the
Borrowers  will permit the Agent and such  representatives  from time to time as
the Agent and such representatives  reasonably may request (in the absence of an
Event of Default,  upon reasonable  notice and during normal business hours), to
examine,  inspect,  copy,  and make extracts from any and all of the  Borrowers'

                                     - 81 -
<PAGE>

books,  records,  electronically  stored data,  papers, and files. The Borrowers
shall make sufficient copying facilities available to the Agent.
               (b)      The Borrowers hereby authorize the Agent and the Agent's
representatives to:
                      (i)      Inspect,  copy,  duplicate,  review,  cause to be
        reduced to hard copy,  run off,  draw off, and otherwise use any and all
        computer or electronically  stored  information or data which relates to
        the  Borrowers,  and agree to direct  any  service  bureau,  contractor,
        accountant,  or other  person who  maintains  such  information  for the
        Borrowers   fully  to   cooperate   with  the  Agent  and  the   Agent's
        representatives with respect thereto.
                      (ii)  Verify  at any time the  Collateral  or any  portion
        thereof,  including  verification with Account Debtors,  and/or with the
        Borrowers'  computer  billing  companies,   collection   agencies,   and
        accountants  and to sign the name of the  Borrowers on any notice to the
        Borrowers' Account Debtors or verification of the Collateral.

        5.3.   Immediate Notice to Agent.
               (a)      The Lead  Borrower  shall provide the Agent with written
notice  immediately  upon the occurrence of any of the following  events,  which
written notice shall be reasonably  particular as to the facts and circumstances
in respect of which such notice is being given:
                      (i)    Any change  in the Parent's Chief Executive Officer
        or Chief Financial Officer.
                      (ii)  The  completion  of any  physical  count of all or a
        material  portion of the Borrowers'  Inventory  (together with a copy of
        the results thereof certified by the Lead Borrower).
                      (iii)  Any  cessation  by the  Borrowers  of their  making
        payment to their creditors generally as the Borrowers' debts become due.
                      (iv)  Any  failure  by the  Borrowers  to pay  rent at any
        thirty (30) of the Borrowers' locations at any one time, if such failure
        continues  for more than fifteen (15) days after any grace period and if
        (A)   notice   of    rent    default,  to   the  extent  required  under

                                     - 82 -
<PAGE>

        any relevant lease, has been received by the Borrowers, and (B) the rent
        not paid is  not the subject  of reasonable  dispute as to whether it is
        owed.
                      (v)      Any  Material  Adverse  Change  in the  business,
        operations, or financial affairs of the Borrowers.
                      (vi) The  occurrence of any  Suspension  Event.  (vii) Any
                      intention on the part of the Parent to discharge the
        Parent's   present   independent   accountants   or  any  withdrawal  or
        resignation by such  independent  accountants  from their acting in such
        capacity.
                      (viii) Any litigation  which,  if determined  adversely to
        the Borrowers,  would  reasonably be expected to have a Material Adverse
        Effect.
                      (ix)  The  occurrence  of an event  or  circumstance  with
        respect to any Employee  Benefit Plan which would reasonably be expected
        to have Material Adverse Effect.
                      (x)      Any delay in the Borrowers' meeting the timetable
        for their  operations  becoming  Year 2000  Compliant  as  described  on
        EXHIBIT  4.5 or  maintaining  such  operations  as Year 2000  Compliant,
        except  where  such delay or  failure  to so  maintain  would not have a
        Material Adverse Effect.
               (b)    The Lead Borrower shall:
                      (i)       Provide  the Agent,  when so  distributed,  with
        copies of any materials  distributed to the  shareholders  of the Parent
        (qua such shareholders).
                      (ii) Provide the Agent:
                             (A)    When  filed, copies of all  filings  by  the
               Parent with the SEC.
                             (B)    When  received, copies of all correspondence
               from   the  SEC,  other  than  routine   non-substantive  general
               communications from the SEC.
                      (iii) Add the Agent as an addressee  on all mailing  lists
        maintained by or for the Borrowers which Agent may request.
                      (iv) At the  request  of the  Agent,  from  time to  time,
        provide the Agent with copies of all  advertising  (including  copies of
        all  print  advertising  and  duplicate  tapes of all  video  and  radio
        advertising).

                                     - 83 -
<PAGE>

                      (v)        Provide  the  Agent,   when   received  by  the
        Borrowers,   with  a  copy  of  any   management   letter   or   similar
        communications from any accountant of the Borrowers.

        5.4.  Borrowing  Base  Certificate.  The Lead Borrower shall provide the
Agent a Borrowing Base Certificate (in the form of EXHIBIT 5.4, as such form may
be revised by agreement  of the Lead  Borrower  and the Agent),  reflecting  the
Borrowers'   condition  on  the  last  Business  Day  of  the  reporting  period
immediately prior to the date when furnished, at the following times:
               (a)      Within ten (10) Business  Days  following the end of the
Borrowers' fiscal month.
               (b)      On any  Thursday  (or the  next  Business  Day,  if that
Thursday is not a Business Day)  following any week (Sunday to Saturday)  during
which average  Availability has been less than $15 Million.  Such Borrowing Base
Certificate  may be sent to the Agent by facsimile  transmission,  provided that
the original thereof is forwarded to the Agent on the date of such transmission.

        5.5. Monthly Collateral Reports. Monthly, within thirty (30) days of the
end of the previous fiscal month, the Lead Borrower shall provide the Agent with
such  Collateral  Reports (in the form acceptable to Agent) as are identified on
EXHIBIT 5.5. For the purposes of this Section,  the first "previous month" shall
be November, 1999.

        5.6      Monthly Financial Reports.  Monthly, within thirty (30) days of
the end of the previous fiscal month, the Lead Borrower shall provide the Agent,
in such form as the Agent and the Lead Borrower may agree, original counterparts
of an internally  prepared  statement of the Borrowers'  Consolidated  financial
condition  for the  period  ending  with  the end of the  subject  month,  which
financial  statement  shall  include,  at a  minimum,  a balance  sheet,  income
statement (on a Consolidated  basis), cash flow statement and comparison of same
store  sales  for  the  corresponding  month  of the  prior  year,  as  well  as
comparisons to the Business Plan.

                                     - 84 -
<PAGE>

        5.7      Quarterly Financial Reports.  Quarterly, within forty-five (45)
days following the end of each of its first three fiscal quarters in each fiscal
year,  the Lead  Borrower  shall  provide the Agent a copy of its Report on Form
10-Q filed with the SEC.

        5.8      Annual Reports. Annually, within ninety (90) days following the
end of its Fiscal Year, the Lead Borrower shall furnish the Agent with a copy of
its  Report on Form 10-K  filed with the SEC,  and  within  thirty  (30) days of
delivery  by  Borrower's  independant  accountants,   any  so-called  management
letters.

        5.9      Officers' Certificates. The Lead Borrower shall cause its Chief
Executive  Officer,  Chief  Financial  Officer or Vice  President  of Finance to
certify in connection with the monthly,  quarterly,  and annual statements to be
furnished pursuant to this Agreement that:
               (a)      Such statements (other than the monthly statements) were
prepared in accordance  with GAAP  consistently  applied and present  fairly the
financial  condition  of the  Borrowers  at the close of, and the results of the
Borrowers'  operations  and cash  flows for,  the  period(s)  covered,  subject,
however to the following:
                      (i)      usual year end adjustments  (this exception shall
        not  be  included  in  the  certificate  which  accompanies  the  annual
        statement).
                      (ii)  Material  Accounting  Changes (in which event,  such
        certificate  shall  include a  schedule  (in  reasonable  detail) of the
        effect  of  each  such  Material   Accounting   Change)  not  previously
        specifically  taken into  account  in  determining  satisfaction  of the
        financial performance covenant imposed by Section 5.12.
               (b)      No  Suspension  Event has  occurred or, if such an event
has occurred shall describe, its nature (in reasonable detail) and the steps (if
any) being taken or contemplated by the Borrower to be taken on account thereof.
               (c)      The  Borrowers  were in  compliance  (or had  failed  to
comply) as of the date of the  applicable  statement  with each of the financial
performance  covenants included in Section 5.12 hereof, such certification to be
accompanied  by calculations demonstrating such compliance or failure to comply.

                                     - 85 -
<PAGE>

        5.10   Inventories, Appraisals, and Audits.
               (a)        The  Agent  may,  at the  expense  of  the  Borrowers,
participate in and/or observe,  each physical count and/or  inventory of so much
of the Collateral as consists of Inventory  which is undertaken on behalf of the
Borrowers.
               (b)      The  Borrowers,  at their own expense,  shall cause each
store  location to have not less than one (1) physical  inventory in each fiscal
year to be  undertaken  on a generally  annual  basis,  consistent  with current
practice,  while this  Agreement is in effect (the  scheduling of which shall be
subject to the  Agent's  reasonable  discretion),  conducted  by such  inventory
takers as are satisfactory to the Agent and following such methodology as may be
satisfactory to the Agent.
                      (i)      The Lead Borrower  shall provide the Agent with a
        copy of the  preliminary  results of each such  inventory (as well as of
        any other physical inventory  undertaken by the Borrowers) within thirty
        (30) days following its completion.
                      (ii) The Lead  Borrower  shall  provide  the Agent  with a
        reconciliation  of the results of each such inventory (as well as of any
        other physical inventory reconciliation  undertaken by the Borrowers) to
        the  Borrowers'  books and records within thirty (30) days following the
        completion of such inventory.
                      (iii) Following the occurrence of an Event of Default, the
        Agent may, in its discretion,  cause such  additional  inventories to be
        taken as the Agent determines (each at the expense of the Borrowers).
               (c)        Upon  the  Agent's  request  from  time to  time,  the
Borrowers  shall permit the Agent to arrange for  Inventory  appraisals  (at the
Borrower's  expense)  conducted by such  appraisers as are  satisfactory  to the
Agent.  Prior to the  occurrence  of any Event of Default the Agent shall obtain
two (2)  appraisals in each twelve (12) month period during which this Agreement
is in effect (the spacing of the scheduling of which appraisals shall be subject
to the  Agent's  discretion).  The  Agent,  in  its  discretion,  following  the
occurrence of an Event of Default,  may cause such  additional  appraisals to be
taken as the Agent determines (each, at the expense of the Borrowers).
               (d)      The    Agent    contemplates   conducting     two    (2)
commercial     finance    audits   (at     the   Borrowers'  expense)   of   the
Borrowers'  books    and    records   during    any    twelve    (12)      month

                                     - 86 -
<PAGE>

 period  during  which this  Agreement is in effect.
The Agent, in its  discretion,  following the occurrence of an Event of Default,
may cause such  additional  audits to be taken as the Agent  determines  (at the
expense of the Borrowers).
               (e)      The  Agent  contemplates  causing  not more than two (2)
(so-called)  "mystery shopping" visits to all or any of the Borrowers'  business
premises  during any 12-month  period during which this  Agreement is in effect,
but following the occurrence of an Event of Default,  may cause  additional such
visits to be undertaken (in each event,  at the Borrowers'  expense).  The Agent
shall provide the Borrowers with a copy of any non-confidential  results of such
mystery shopping.

        5.11.  Additional Financial Information.
               (a)      In  addition  to all other  information  required  to be
provided  pursuant to this Article V, the Lead Borrower  promptly  shall provide
the Agent (and any  guarantor  of the  Liabilities),  such other and  additional
information  concerning  the  Borrowers,  the  Collateral,  the operation of the
Borrowers' business, and the Borrowers' financial condition, including financial
reports and statements (including supporting  schedules),  as the Agent may from
time to time reasonably request from the Lead Borrower.
               (b)      The Lead  Borrower  may provide the Agent,  from time to
time  hereafter,   with  updated  projections  of  the  Borrowers'   anticipated
performance and operating results.
               (c)      The Lead Borrower  shall, no later than thirty (30) days
following the end of each of the Borrowers' fiscal years, furnish the Agent with
an updated and extended  projection  which shall extend at least through the end
of the  then  current  fiscal  year,  as well as with any  modifications  to the
Business  Plan,  the  initial  version  of which is  annexed  hereto as  EXHIBIT
5.11(C).
               (d)      Such updated and extended  projections shall be prepared
pursuant  to  such  methodology  and  shall  include  such  assumptions  as  are
satisfactory to the Agent.

        5.12. Financial Performance Covenants.  The Borrowers shall at all times
comply    with    the    financial    performance   covenants   described below.
Compliance    with   such   financial    performance    covenants    shall    be
determined  as   if   no   Material   Accounting  Changes   had    been     made

                                     - 87 -
<PAGE>

since  the  date   of   this   Agreement  (other  than any  Material  Accounting
Changes  specifically taken into account in the setting of such covenants).  The
Agent may  determine  the  Borrowers'  compliance  with such  covenants by using
financial  reports and statements  provided by the Lead Borrower to the Agent or
any Lender (whether or not such financial reports and statements are required to
be  furnished  pursuant to this  Agreement)  as well as by  reference to interim
financial  information  provided to, or developed by, the Agent. These covenants
are as follows:
               (a)         EBITDA:Following   the   occurrence  and  during  the
continuance of a Cash Management Condition,  the Borrowers shall comply with the
following  EBITDA  covenant:  Commencing  on the first  Business Day of December
1999,  and continuing on the first  Business Day of each month  thereafter,  the
Borrowers  shall not permit their  EBITDA,  calculated  on a rolling  historical
twelve (12) month basis, to be less than zero (0) for any twelve month period up
to and  including  the  twelve  month  period  ending  December  31,  2001,  and
$5,000,000  for any  such  twelve  month  period  ending  January  31,  2002 and
thereafter.
               (b)       Capital  Expenditures.  At no time shall the  Borrowers
permit  their  annual  aggregate  Capital  Expenditures  to exceed  the  Capital
Expenditure Cap of  $25,000,000.00  in any fiscal year. The Borrowers shall have
the right to  carryover  to the next  immediately  succeeding  fiscal year up to
$7,500,000.00 of unused amounts within the Capital Expenditure Cap.


ARTICLE VI - USE AND COLLECTION OF COLLATERAL:
        6.1.   Use of Inventory Collateral.
               (a)        The  Borrowers  shall  not  engage  in any sale of the
Inventory  other than for fair  consideration  in the conduct of the  Borrowers'
business in the  ordinary  course  (including  but not  limited to seasonal  and
promotional  sales)  and shall  not  engage  in sales or other  dispositions  to
creditors,  sales or other dispositions in bulk other than going out of business
sales performed in connection with store closures that are permitted pursuant to
Section 4.14(e).
               (b)      No sale of Inventory shall be on consignment,  approval,
or under any other circumstances such that, with the exception of the Borrowers'
customary return policy  applicable to the return of Inventory  purchased by the
Borrowers'  retail  customers  in the ordinary  course,  such  Inventory  may be
returned to the Borrowers without the consent of the Agent.

                                     - 88 -
<PAGE>

        6.2. Inventory Quality. All Inventory now owned or hereafter acquired by
the  Borrowers  are and will be of good and  merchantable  quality and free from
defects (other than within customary trade tolerances).

        6.3. Adjustments and Allowances. The Borrowers may grant such allowances
or other  adjustments  to the  Borrowers'  Account  Debtors as the Borrowers may
reasonably  deem to accord with sound business  practice and consistent with the
Borrowers' past practice, provided, however, the authority granted the Borrowers
pursuant to this  Section 6.3 may be limited or  terminated  by the Agent during
the continuation of an Event of Default.

        6.4.   Validity of Accounts.
               (a)      The amount of each Account shown on the books,  records,
and invoices of the Borrowers represented as owing by each Account Debtor is and
will be the correct amount  actually owing by such Account Debtor and shall have
been fully earned by performance by the Borrowers.
               (b)        The  Borrowers  have  no  knowledge  of  any  material
impairment  of the validity or  collectability  of any of the Accounts and shall
cause the Lead Borrower to notify the Agent of any such fact  immediately  after
any Borrower becomes aware of any such impairment.

        6.5.  Notification to Account Debtors. The Agent shall have the right at
any time following the occurrence of a Cash  Management  Condition (and an Event
of Default has occurred) to notify any of the Borrowers' Account Debtors to make
payment  directly  to the Agent and to collect all amounts due on account of the
Collateral.

ARTICLE VII - CASH MANAGEMENT; PAYMENT OF LIABILITIES:
        7.1.   Depository Accounts.
               (a)       Annexed  hereto as  EXHIBIT  7.1 is a  Schedule  of all
present    DDA's,    which    Schedule    includes,  with    respect   to   each
depository   (i)   the    name   and  address   of  that  depository;  (ii)  the
account number(s)  of the  account(s)  maintained  with such depository; (iii) a

                                     - 89 -
<PAGE>

  contact  person at such
depository;  and (iv) the Borrower and such Borrower's store locations utilizing
such DDA.
               (b)      The Lead  Borrower  shall  deliver  to the  Agent,  as a
condition to the effectiveness of this Agreement the following:
                      (i)         Notification,   executed   on  behalf  of  the
        Borrowers,  to  each  depository  institution  with  which  any  DDA  is
        maintained (other than the Operating  Account or any Local  Disbursement
        Account),  in form satisfactory to the Agent, of the Agent's interest in
        such DDA,  which  notice  provides  that the contents of such DDA shall,
        prior to the occurrence of a Cash Management  Condition,  be directed to
        the Blocked  Account and following the  occurrence of a Cash  Management
        Condition, be directed to the Concentration Account.
                      (ii) A  Blocked  Account  Agreement  with  any  depository
        institution at which a Blocked Account is maintained.
               (c)      No Borrower will establish any DDA hereafter (other than
a Local  Disbursement  Account) unless within 10 days after such  establishment,
the Lead  Borrower  provides a  notification,  as required by Section  7.1(b)(i)
above, that the contents of such DDA are to be directed into the Blocked Account
and,  upon the  occurrence of a Cash  Management  Condition,  the  Concentration
Account.

        7.2.   Credit Card Receipts.
               (a)       Annexed  hereto  as  EXHIBIT  7.2 is a  Schedule  which
describes  all  arrangements  to which the Borrowers are parties with respect to
the payment to the  Borrowers  of the  proceeds  of all credit card  charges for
sales by the Borrowers.
               (b)      The Borrowers  shall deliver to the Agent as a condition
to the effectiveness of this Agreement, notification,  executed on behalf of the
Borrowers,  to each of the Borrowers' credit card  clearinghouses and processors
(in form satisfactory to the Agent), which notification provides that payment of
all credit card charges  submitted by the  Borrowers  to that  clearinghouse  or
other  processor  and  any  other  amount  payable  to  the  Borrowers  by  such
clearinghouse  or  other  processor  shall,  prior to the  occurrence  of a Cash

                                     - 90 -
<PAGE>

Management  Condition,  be directed to the Blocked  Account and,  following  the
occurrence  of  a  Cash   Management   Condition,   shall  be  directed  to  the
Concentration Account or as otherwise designated from time to time by the Agent.
The Borrowers  shall not change such  direction or  designation  except upon and
with the prior written consent of the Agent.

        7.3.   The Concentration, Blocked, and Operating Accounts.
               (a)     The  following deposit accounts shall be established (and
are so referred to herein):
                      (i)        The  CONCENTRATION   ACCOUNT:  At  the  Agent's
        election,  either the Blocked  Account or an account  established by the
        Agent with BankBoston, N.A.
                      (ii) The BLOCKED  ACCOUNT:  Established  by the  Borrowers
        with Chase  Manhattan  Bank and the other  depository  institutions  set
        forth on Exhibit  7.3(a)(ii)  into which  deposits  must be directed and
        from which the Borrowers shall not make disbursements.
                      (iii) The OPERATING ACCOUNT:  Established by the Borrowers
        with Chase Manhattan Bank, from which only disbursements may be made and
        into which only advances  under the  Revolving  Credit and (prior to the
        occurrence  of a Cash  Management  Condition)  proceeds from the Blocked
        Account, may be deposited .
               (b)       The  contents  of each DDA  (other  than the  Operating
Account),  the Blocked Account constitute Collateral and Proceeds of Collateral.
Funds in the  Concentration  Account  constitute a payment of  Liabilities  when
collected to the extent of Liabilities.
               (c)      The Borrowers  shall not  establish any Blocked  Account
hereafter except upon not less than thirty (30) days prior written notice to the
Agent and the delivery to the Agent of a Blocked Account  Agreement with respect
thereto.
               (d)      The  Borrowers  shall pay all fees and  charges  of, and
maintain such minimum balances as may be required by the Agent or by any bank in
which any account is opened as required  hereby  (even if such account is opened
by the Agent).

        7.4.   Proceeds and Collection of Accounts
               (a)      All    Receipts   constitute  Collateral   and  Proceeds
of    Collateral    and    (other    than     Receipts    from   the    sale  of
Investment   Property     or    Permitted  Investments)  shall    be   held   in

                                     - 91 -
<PAGE>

trust  by  the  Borrowers  for  the Agent,  shall not be commingled  with any of
the Borrowers'  other funds and shall be deposited and/or  transferred  prior to
the  occurrence of a Cash  Management  Condition,  only to the Blocked  Account.
Following the occurrence of a Cash Management  Condition,  all Receipts shall be
deposited or transferred only to the Concentration Account.
               (b)      The  Borrowers  shall cause the ACH or wire  transfer to
the Blocked Account or the  Concentration  Account,  as the case may be, no less
frequently  than  each  Business  Day  (and  whether  or not  there  is  then an
outstanding balance in the Loan Account) of the following:
                      (i)      The  contents  of each  DDA  (other  than (A) any
        Local  Disbursement  Account and (B) the Operating  Account).  Each such
        transfer shall be net of any minimum balance, not to exceed the balances
        set forth in Exhibit  7.4(b)(i)  for each DDA,  as may be required to be
        maintained  in  the  subject  DDA by  the  bank  at  which  such  DDA is
        maintained.
                      (ii) The proceeds of all credit card charges not otherwise
        provided for pursuant hereto.
               (c)        At  any  time  following  the  occurrence  of  a  Cash
Management  Condition and whether or not any Liabilities  are then  outstanding,
the Borrowers  shall  undertake the following  (and the Agent may give notice to
the bank at which the Blocked Account is maintained to undertake the following):
                      (i)         Cause  the  ACH  or  wire   transfer   to  the
        Concentration  Account,  no less  frequently  than daily, of then entire
        ledger balance of the Blocked Account,  net of such minimum balance,  as
        may be required to be maintained  in the Blocked  Account by the bank at
        which the Blocked Account is maintained.
                      (ii) Cause to be transferred to the Agent's control, or to
        an intermediary  subject to a control agreement with the Agent, all cash
        (other than on deposit in the Local Disbursement  Accounts),  Investment
        Property and other Permitted Investments.
In the event that, notwithstanding the provisions of this Section 7.4(c), any of
the Borrowers receives or otherwise has dominion and control of any Receipts, or
any    proceeds    or    collections    of    any   Collateral,  such  Receipts,
proceeds,    and   collections  shall  be  held  in    trust  by  the  Borrowers

                                     - 92 -
<PAGE>

for  the  Agent and shall not  be  commingled with any of  the Borrowers'  other
funds or deposited in any account of the  Borrowers  other than as instructed by
the Agent.

        7.5.   Payment of Liabilities.
               (a)      On each Business Day following the occurrence and during
the continuance of a Cash Management  Condition,  the Agent shall apply, towards
the  unpaid  balance  of the Loan  Account,  the then  collected  balance of the
Concentration  Account (net of fees charged, and of such minimum balances as may
be required by the bank at which the Concentration Account is maintained).
               (b)      The following rules shall apply to deposits and payments
under and pursuant to this Agreement:
                      (i)      Funds shall be deemed to have been  deposited  to
        the  Concentration  Account  on the  Business  Day on  which  deposited,
        provided  that such  deposit is received by the Agent by 2:00 PM on that
        Business Day.
                      (ii) Funds paid to the Agent, other than by deposit to the
        Concentration  Account,  shall be deemed to have  been  received  on the
        Business Day when they are good and collected funds,  provided that such
        payment is received by the Agent by 2:00PM on that Business Day.
                      (iii) If a deposit to the  Concentration  Account (Section
        7.5(b)(i)) or payment (Section  7.5(b)(ii)) is not received by the Agent
        until after 2:00 PM on a Business  Day, such deposit or payment shall be
        deemed to have been made at 9:00 AM on the next succeeding Business Day.
                      (iv) All deposits to the  Concentration  Account and other
        payments to the Agent are subject to clearance and collection.
               (c)      The Agent shall  transfer to the  Operating  Account any
surplus in the Concentration Account remaining after the application towards the
Liabilities  referred to in Section  7.5(a) (less those  amounts which are to be
netted out, as provided therein) provided, however, in the event that both (i) a
Suspension  Event has occurred and (ii) one or more L/C's are then  outstanding,
the Agent may establish a funded  reserve of up to 105% of the aggregate  Stated
Amounts of such L/C's.

                                     - 93 -
<PAGE>

        7.6. The Operating Account.  Except as otherwise  specifically  provided
in, or permitted by, this Agreement,  all checks shall be drawn by the Borrowers
upon, and other  disbursements  shall be made by the Borrowers  solely from, the
Operating Account and the Local Disbursement Accounts..

ARTICLE VIII - GRANT OF SECURITY INTEREST:
        8.1.  Grant of  Security  Interest.  To secure  the  Borrowers'  prompt,
punctual,  and  faithful  performance  and  payment  of  all  and  each  of  the
Liabilities,  each Borrower hereby grants to the Agent,  for the ratable benefit
of the  Lenders,  a continuing  security  interest in and to, and assigns to the
Agent,  for the ratable  benefit of the Lenders,  the  following,  and each item
thereof,  whether  now  owned  or now  due,  or in which  that  Borrower  has an
interest,  or hereafter  acquired,  arising,  or to become due, or in which that
Borrower obtains an interest,  and all products,  Proceeds,  substitutions,  and
accessions of or to any of the following (all of which,  together with any other
property in which the Agent may in the future be granted a security interest, is
referred to herein as the "COLLATERAL"):
               (a)    All Accounts.
               (b)    All Inventory.
               (c)    All General Intangibles.
               (d)    All Equipment.
               (e)    All Goods.
               (f)    All Fixtures.
               (g)    All Chattel Paper.
               (h)    All  books,  records,  and  information  relating  to  the
                      Collateral  and/or  to the  operation  of  the  Borrower's
                      business, and all rights of access to such books, records,
                      and  information,  and all  property  in which such books,
                      records,  and  information  are  stored,   recorded,   and
                      maintained.
               (i)    All Investment Property,  Instruments,  Documents, Deposit
                      Accounts,   policies  and   certificates   of   insurance,
                      deposits,   impressed  accounts,   compensating  balances,
                      money, cash, or other property.

                                     - 94 -
<PAGE>

               (j)    All  insurance  proceeds,  refunds,  and premium  rebates,
                      including, without limitation, proceeds of fire and credit
                      insurance,  whether  any of such  proceeds,  refunds,  and
                      premium rebates arise out of any of the foregoing  (8.1(a)
                      through 8.1(i)) or otherwise.
               (k)    All liens,  guaranties,  rights,  remedies, and privileges
                      pertaining to any of the foregoing (8.1(a) through 8.1(j),
                      including the right of stoppage in transit.

        8.2.  Extent and Duration of Security  Interest.  The security  interest
created and granted herein is in addition to, and  supplemental of, any security
interest  previously granted by the Borrowers to the Agent and shall continue in
full force and effect until all Liabilities  have been paid and/or  satisfied in
full, no more  Commitments  exist and the security  interest  granted  herein is
specifically  terminated in writing by a duly  authorized  officer of the Agent,
which termination shall not unreasonably be withheld.

ARTICLE IX - AGENT AS BORROWERS' ATTORNEY-IN-FACT:
        9.1. Appointment as  Attorney-In-Fact.  The Borrowers hereby irrevocably
constitutes and appoints the Agent as the Borrowers'  true and lawful  attorney,
with full power of substitution, effective following Acceleration to convert the
Collateral  into cash at the sole risk,  cost, and expense of the Borrower,  but
for the  ratable  benefit  of the Agent and the  Lenders.  The rights and powers
granted the Agent by the within  appointment  include but are not limited to the
right and power to:
               (a)       Prosecute,  defend,  compromise,  or release any action
relating to the Collateral.
               (b)      Sign  change of address  forms to change the  address to
which the  Borrowers'  mail is to be sent to such  address  as the  Agent  shall
designate;    receive    and    open    the    Borrowers'   mail;    remove  any
Receivables   Collateral  and   Proceeds   of   Collateral  therefrom   and turn
over   the   balance   of   such   mail   either   to   the    Borrowers   or to
any   trustee   in    bankruptcy,   receiver,   assignee   for  the  benefit  of
creditors   of    the  Borrowers,  or   other   legal   representative  of   the

                                     - 95 -
<PAGE>

Borrowers  whom  the  Agent determines  to be  the appropriate person to whom to
so turn over such mail.
               (c)      Endorse the name of the  Borrowers in favor of the Agent
upon  any  and all  checks,  drafts,  notes,  acceptances,  or  other  items  or
instruments;  sign and  endorse  the name of the  Borrowers  on, and  receive as
secured party,  any of the  Collateral,  any invoices,  schedules of Collateral,
freight or express receipts,  or bills of lading,  storage  receipts,  warehouse
receipts,  or other documents of title  respectively  relating to the Collateral
(with  copies  of the  foregoing  to be made  available  by  Agent  to the  Lead
Borrower).
               (d)       Sign the name of the  Borrowers  on any  notice  to the
Borrowers' Account Debtors or verification of the Receivables  Collateral;  sign
the Borrowers' name on any proof of claim in bankruptcy against Account Debtors,
and on notices of lien,  claims of mechanic's  liens, or assignments or releases
of mechanic's liens securing the Accounts.
               (e)      Take all such action as may be  necessary  to obtain the
payment  of any  letter  of  credit  and/or  banker's  acceptance  of which  the
Borrowers are a beneficiary.
               (f)        Repair,  manufacture,   assemble,  complete,  package,
deliver, alter or supply goods, if any, necessary to fulfill in whole or in part
the purchase order of any customer of the Borrowers.
               (g)      Use, license or transfer any or all General  Intangibles
of the Borrower.

        9.2. No Obligation to Act. The Agent shall not be obligated to do any of
the acts or to exercise any of the powers authorized by Section 9.1 herein,  but
if the Agent  elects to do any such act or to exercise  any of such  powers,  it
shall not be accountable  for more than it actually  receives as a result of the
reasonable exercise of such power, and shall not be responsible to the Borrowers
for any act or omission to act except for any act or omission to act as to which
there  is  a  final  determination  made  in a  judicial  proceeding  (in  which
proceeding  the Agent has had an  opportunity  to be heard) which  determination
includes a specific  finding  that the  subject  act or omission to act had been
grossly  negligent,  actual bad faith,  constituted  willful  misconduct  or was
commercially unreasonable.

                                     - 96 -
<PAGE>

ARTICLE X - EVENTS OF DEFAULT:
        The occurrence of any event described in this Article X shall,  upon the
passage  of any  applicable  grace  or cure  period,  constitute  an  "EVENT  OF
DEFAULT".  Upon the  occurrence  of any Event of  Default  described  in Section
10.11, any and all Liabilities  shall become due and payable without any further
act on the part of the Agent or any  Lender.  Upon the  occurrence  of any other
Event of Default,  any and all  Liabilities  shall  become  immediately  due and
payable,  at the option of the Agent or at the  direction  of the  SuperMajority
Lenders and upon notice or demand to the Lead  Borrower.  The  occurrence of any
Event of Default  shall also  constitute,  without  notice or demand,  a default
under all other agreements between the Agent or any Lender and the Borrowers and
instruments, whether such agreements now exist or hereafter arise.

        10.1.  Failure to Pay Revolving Credit.  The failure by the Borrowers to
pay (i) any principal amount when due and (ii) any interest or fees within three
(3) Business Days of when due, under the Revolving Credit.

        10.2.  Failure To Make Other  Payments.  The failure by the Borrowers to
pay within five (5)  Business  Days of when due (or upon  demand,  if payable on
demand) any payment Liability other than under the Revolving Credit.

        10.3.  Failure to Perform  Covenant or Liability (No Grace Period).  The
failure by the Borrowers to promptly, punctually, faithfully and timely perform,
discharge,  or comply with any covenant or Liability not otherwise  described in
Section  10.1 or Section  10.2  hereof,  and  included  in any of the  following
provisions hereof:
                  Section             Relates to            :
                  ------------------------------------------
                  4.3(b)                Notice of Name Change
                  4.6                   Location of Collateral
                  4.7                   Title to Assets
                  4.8                   Indebtedness
                  4.10                  Insurance Policies
                  4.15                  Pay taxes
                  4.20                  Dividends, Investments, Repurchases and
                                               Debt Retirement

                                     - 97 -
<PAGE>

                  4.25                  Additional Assurances
                  5.1                   Maintain Records
                  5.2                   Access to Records
                  5.3                   Immediate Notice to Agent
                  5.4                   Borrowing Base Certificate
                  5.10                  Inventories, Appraisals, and Audits
                  5.11                  Additional Financial Information
                  5.12                  Financial Performance Covenants
                  6.1                   Use of Collateral
                  Article VII           Cash Management

provided,  however,  that in the case of a breach of any  covenant  set forth in
Sections 4.3, 4.6, 4.7, 4.15 and 4.25, no such  occurrence  (either singly or in
the aggregate) shall be an Event of Default unless it (i) has a Material Adverse
Effect,  (ii) result in an  impairment,  loss or  diminution of Collateral of $5
Million or more or (iii) is not cured within ten (10) days  written  notice from
the Agent as provided in Section 10.4; provided further, however, in the case of
Section  5.4, no such  occurrence  shall be an Event of Default if cured  within
three (3) Business Days.

        10.4.  Failure to Perform  Covenant or  Liability  (Grace  Period).  The
failure by the Borrowers,  upon ten (10) days written notice by the Agent to the
Lead  Borrower,  to cure the  Borrowers'  failure to  promptly,  punctually  and
faithfully  perform,  discharge,  or comply with any covenant or  Liability  not
described in any of Sections 10.1, 10.2, or 10.3 hereof.

        10.5. Misrepresentation. The reasonable determination by the Agent, made
in good faith that any material  representation  or warranty at any time made by
the  Borrowers  to the  Agent or any  Lender,  was not true or  complete  in all
material respects when given.

        10.6. Acceleration of Other Debt; Breach of Lease. The occurrence of any
event such that any Indebtedness of the Borrowers in excess of $5,000,000 to any
creditor other than the Agent or any Lender has been accelerated or, without the
consent of such Borrowers twenty (20) Leases are terminated at any given time.

                                     - 98 -
<PAGE>

        10.7.  Default Under Other  Agreements.  The occurrence of any breach or
default under any agreement  between the Agent and the Borrowers (and which does
not constitute a Loan Document),  whether such agreement now exists or hereafter
arises  (notwithstanding  that the Agent may not have  exercised its rights upon
default under any such other agreement,  instrument or paper),  which breach has
not been cured within twenty (20) days or (if more) any applicable cure period.

        10.8.  Uninsured  Casualty Loss.  The occurrence of any uninsured  loss,
theft,  damage,  or destruction of or to any material portion of the Collateral,
in excess of $5 Million  during any  calendar  year while this  Agreement  is in
effect.

        10.9.  Judgment; Restraint of Business.
               (a)      The  service of process  upon the Agent or any Lender or
any Participant seeking to attach, by trustee, mesne, or other process, any of a
Borrower's  funds on deposit with, or assets of such Borrower in the  possession
of, the Agent or any Lender or such  Participant,  which is not timely contested
in good faith by such Borrower by appropriate  proceedings,  or if so contested,
is not dismissed within the applicable appeals period.
               (b)      The entry of any judgments against any Borrower or group
of Borrowers in excess of $5 Million in the aggregate, which judgment(s) are not
satisfied  (if a money  judgment),  bonded or appealed  from (with  execution or
similar process stayed) within the applicable appeal period.
               (c)      The  entry of any order or the  imposition  of any other
process  having  the force of law,  the  effect of which is to  restrain  in any
material way the conduct by any Borrower of its business in the ordinary  course
which would result in a Material Adverse Effect.

        10.10.  Business  Failure.  Any  act by,  against,  or  relating  to any
Borrower,  or its property or assets, which act constitutes the application for,
consent to, or sufferance of the  appointment of a receiver,  trustee,  or other
person,  pursuant    to    court  action   or  otherwise,  over all, or any part
of such    Borrower's    property,  and    which,  if   commenced  against  such
Borrower,  is    not    timely    contested    in     good     faith   by   such
Borrower    by    appropriate   proceedings,  or    if    so  contested,  is not

                                     - 99 -
<PAGE>

dismissed  within   sixty (60)  days  of  when filed;  the granting of any trust
mortgage or execution of an  assignment  for the benefit of the creditors of any
Borrower, or the occurrence of any other voluntary or involuntary liquidation or
extension of debt agreement for such Borrower;  the offering by or entering into
by any Borrower of any composition,  extension, or any other arrangement seeking
relief from or extension of the debts of such Borrower; or the initiation of any
judicial or non-judicial  proceeding or agreement by, against,  or including any
Borrower  which seeks or intends to accomplish a  reorganization  or arrangement
with  creditors;  and/or the  initiation  by or on behalf of any Borrower of the
liquidation  or winding  up of all or any part of such  Borrower's  business  or
operations.

        10.11.  Bankruptcy.  The failure by any  Borrower to  generally  pay its
debts as they mature;  adjudication of bankruptcy or insolvency  relative to any
Borrower;  the entry of an order for relief or similar order with respect to any
Borrower in any proceeding  pursuant to the Bankruptcy Code or any other federal
bankruptcy  law; the filing of any  complaint,  application,  or petition by any
Borrower  initiating  any matter in which such Borrower is or may be granted any
relief from the debts of that Borrower  pursuant to the  Bankruptcy  Code or any
other insolvency statute or procedure; the filing of any complaint, application,
or petition against any Borrower initiating any matter in which that Borrower is
or may be granted  any relief  from the debts of such  Borrower  pursuant to the
Bankruptcy Code or any other insolvency statute or procedure, if such complaint,
application,  or petition is not timely contested in good faith by such Borrower
by appropriate  proceedings or, if so contested,  is not dismissed  within sixty
(60) days of when filed.

        10.12. Indictment;  Forfeiture. The indictment of, or institution of any
legal process or proceeding  against,  any Borrower,  under any federal,  state,
municipal,  and other civil or criminal  statute,  rule,  regulation,  order, or
other  requirement  having  the  force of law where the  relief,  penalties,  or
remedies  sought or  available  include the  forfeiture  of any  property of any
Borrower  and/or the  imposition of any stay or other order,  to the extent such
relief, penalties, remedies, stay or other order would reasonably be expected to
have a Material Adverse Effect.

                                    - 100 -
<PAGE>

        10.13  Foreign  Proceeding.  There occurs in relation to any Borrower in
any country or territory in which it carries on business or, to the jurisdiction
of whose courts any of its assets is subject, any event which, in the reasonable
opinion of the Agent,  appears to correspond to or to have an effect  equivalent
or substantially similar to any of those referenced in Sections 10.9 through and
including  10.12 or any Borrower  becomes  subject  (other than as a creditor or
claimant) in any such country or territory to the  operation of any law relating
to  bankruptcy,  insolvency,  or  liquidation,  to the extent such event or such
Borrower  becoming  subject  to such a law would  result in a  Material  Adverse
Effect.

        10.14. Challenge to Loan Documents.
               (a)      Any challenge in writing by or on behalf of any Borrower
or any guarantor of the  Liabilities to the validity of any Loan Document or the
applicability or enforceability of any Loan Document strictly in accordance with
the  material  substance of such Loan  Document's  terms or which seeks to void,
avoid,  limit, or otherwise adversely affect any security interest created by or
in any Loan Document or any payment made pursuant thereto.
               (b)      Any  determination by any court or any other judicial or
government authority that any Loan Document is not enforceable  substantially in
accordance  with the  subject  Loan  Document's  terms or which  voids,  avoids,
limits, or otherwise adversely affects any material security interest created by
any Loan Document or which determines any material payment made pursuant thereto
is void or voidable.

        10.15. Change in Control.  Any Change in Control.

ARTICLE XI - RIGHTS AND REMEDIES UPON DEFAULT:
        In addition  to all of the rights,  remedies,  powers,  privileges,  and
discretions  which the Agent is provided  prior to the occurrence of an Event of
Default, the Agent shall have the following rights and remedies after and during
the occurrence of any Event of Default.

                                    - 101 -
<PAGE>

        11.1. Rights of Enforcement.  The Agent shall have all of the rights and
remedies of a secured party upon default under the UCC, in addition to which the
Agent shall have all and each of the  following  rights and  remedies  after and
during the occurrence of any Event of Default:
               (a)    To collect  the Receivables Collateral with or without the
taking of possession of any of the Collateral;
               (b)        To  take  possession  of  all or  any  portion  of the
               Collateral;  (c) To sell,  lease, or otherwise  dispose of any or
               all of the Collateral,
in its then condition or following  such  preparation or processing as the Agent
deems  advisable  and with or  without  the taking of  possession  of any of the
Collateral;
               (d)      To conduct one or more going out of business sales which
include the sale or other disposition of the Collateral;
               (e)      To apply the  Receivables  Collateral or the Proceeds of
the Collateral  towards (but not  necessarily in complete  satisfaction  of) the
Liabilities; and
               (f)      To exercise all or any of the rights, remedies,  powers,
privileges, and discretions under all or any of the Loan Documents.

        11.2.  Sale of Collateral.
               (a)      Any sale or other  disposition  of the Collateral may be
at public or private  sale upon such terms and in such manner as the Agent deems
advisable,  having due regard to compliance with any statute or regulation which
might affect, limit, or apply to the Agent's disposition of the Collateral.
               (b)      The Agent,  in the  exercise of the  Agent's  rights and
remedies upon default,  may conduct one or more going out of business  sales, in
the Agent's own right or by one or more agents and contractors. Such sale(s) may
be conducted upon any premises owned,  leased, or occupied by any Borrower.  The
Agent and any such agent or contractor,  in conjunction  with any such sale, may
augment the  Inventory  with other goods (all of which other goods shall  remain
the sole  property  of the  Agent  or such  agent or  contractor).  Any  amounts
realized  from the sale of such  goods  which  constitute  augmentations  to the
Inventory (net of an allocable share of the costs and expenses incurred in their
disposition)    shall    be    the    sole    property  of   the Agent or   such

                                    - 102 -
<PAGE>

agent  or  contractor and  neither  the Borrowers nor any  Person claiming under
or in right of the Borrowers shall have any interest therein.
               (c)      Unless the  Collateral  is  perishable  or  threatens to
decline  speedily in value,  or is of a type  customarily  sold on a  recognized
market (in which  event the Agent  shall  provide  the Lead  Borrower  with such
notice as may be practicable under the circumstances),  the Agent shall give the
Lead Borrower at least ten (10) days prior written notice of the date, time, and
place of any proposed  public sale, and of the date after which any private sale
or other  disposition of the  Collateral  may be made. The Borrowers  agree that
such written notice shall satisfy all  requirements  for notice to the Borrowers
which are  imposed  under the UCC or other  applicable  law with  respect to the
exercise of the Agent's rights and remedies upon default.
               (d)      The Agent and any Lender may, to the extent permitted by
the UCC,  purchase the  Collateral,  or any portion of it at any sale held under
this Article.
               (e)      If any of the Collateral is sold,  leased,  or otherwise
disposed of by the Agent on credit, the Liabilities shall be deemed to have been
reduced  as a result  thereof  to the extent  that  payment is finally  received
thereon by the Agent.
               (f)      The Agent  shall apply the  proceeds of any  exercise of
the Agent's Rights and Remedies under this Article 11 towards the Liabilities in
such manner, and with such frequency, as the Agent may reasonably determine.

        11.3.  Occupation of Business  Location.  In connection with the Agent's
exercise  of the Agent's  rights  under this  Article XI, the Agent may,  unless
prohibited by law, enter upon, occupy, and use any premises owned or occupied by
any Borrower,  and may, unless prohibit by law,  exclude the Borrowers from such
premises or portion thereof as may have been so entered upon, occupied,  or used
by the Agent.  The Agent shall not be  required to remove any of the  Collateral
from any such  premises  upon the Agent's  taking  possession  thereof,  and may
render any Collateral unusable to the Borrowers.  In no event shall the Agent be
liable  to the  Borrowers  for use or  occupancy  by the  Agent of any  premises
pursuant  to this  Article  XI,  nor for  any  charge  (such  as  wages  for the
Borrowers'  employees and  utilities)  incurred in  connection  with the Agent's
exercise of the Agent's Rights and Remedies.

                                    - 103 -
<PAGE>

        11.4. Grant of Nonexclusive  License. Each Borrower hereby grants to the
Agent a royalty free nonexclusive  irrevocable license,  subject to the terms of
any  applicable  licensing  agreement,  with any third party  licensor,  to use,
apply,  and affix any  trademark,  trade  name,  logo,  or the like in which the
Borrower now or  hereafter  has rights,  such license  being with respect to the
Agent's exercise of the rights  hereunder,  in connection with any sale or other
disposition of Inventory.

        11.5.  Assembly of  Collateral.  The Agent may require the  Borrowers to
assemble the  Collateral  and make it  available to the Agent at the  Borrowers'
sole risk and expense at a place or places which are  reasonably  convenient  to
both the Agent and Borrowers.

        11.6. Rights and Remedies. The rights, remedies, powers, privileges, and
discretions of the Agent hereunder (herein,  the " AGENT'S RIGHTS AND REMEDIES")
shall be cumulative  and not exclusive of any rights or remedies  which it would
otherwise have. No delay or omission by the Agent in exercising or enforcing any
of the Agent's  Rights and Remedies  shall operate as, or  constitute,  a waiver
thereof.  No waiver by the Agent of any Event of Default or of any default under
any other agreement shall operate as a waiver of any other default  hereunder or
under any other  agreement.  No single or partial exercise of any of the Agent's
Rights or  Remedies,  and no express  or implied  agreement  or  transaction  of
whatever  nature  entered  into  between the Agent and any person,  at any time,
regarding a  particular,  limited  exercise of the Agent's  rights and  Remedies
shall preclude any other or further exercise of the Agent's Rights and Remedies.
No waiver by the Agent of any of the  Agent's  Rights  and  Remedies  on any one
occasion shall be deemed a waiver on any subsequent  occasion,  nor shall it, in
the absence of express provisions in that regard, be deemed a continuing waiver.
All of the Agent's Rights and Remedies and all of the Agent's rights,  remedies,
powers, privileges, and discretions under any other agreement or transaction may
be exercised by the Agent at such time or times and in such order of  preference
as the Agent in its sole  discretion  may  determine.  The  Agent's  Rights  and
Remedies  may be  exercised  without  resort or  regard  to any other  source of
satisfaction of the Liabilities.

                                    - 104 -
<PAGE>

ARTICLE XII - NOTICES:
        12.1. Notice Addresses.  All notices,  demands, and other communications
made in respect of this Agreement (other than a request for a loan or advance or
other financial  accommodation  under the Revolving Credit) shall be made to the
following  addresses,  each of which may be changed  upon seven (7) days written
notice to all others given as provided in Section 12.2:

If to the Agent:       BankBoston Retail Finance Inc.
                       40 Broad Street
                       Boston, Massachusetts 02109
                       Attention   :  Ms. Elizabeth A. Ratto,
                                      Managing Director
                       Fax         :  617-434-4339

    With a copy to:    Stroock & Stroock & Lavan LLP
                       100 Federal Street
                       Boston, Massachusetts  02110
                       Attention   :  Peter J. Antoszyk, Esquire
                       Fax         :  617-330-5111

If to the Borrower:    Lechters, Inc.
                       One Cape May Street
                       Harrison, New Jersey 07029
                       Attention   :  James J. Sheppard, Chief Financial Officer
                       Fax         :  973-481-7330

     With a copy to:   Sheon Karol, General Counsel
                       Lechters, Inc.
                       One Cape May Street
                       Harrison, New Jersey 07029
                       Fax:        :  973-481-0182

        12.2.  Notice Given.
               (a)        Except  as  otherwise  specifically  provided  herein,
notices shall be deemed made and correspondence  received, as follows (all times
being local to the place of delivery or receipt):
                      (i)      By mail: the sooner of when actually  received or
        three (3) days  following  deposit in the United  States  mail,  postage
        prepaid.

                                    - 105 -
<PAGE>

                      (ii)  By  recognized   overnight  express  delivery:   the
        Business Day following the day when sent.
                      (iii) By Hand:  If  delivered on a Business Day after 9:00
        AM and no later  than two (2)  hours  prior  to the  close of  customary
        business  hours of the  recipient,  when  delivered.  Otherwise,  at the
        opening of the next succeeding Business Day.
                      (iv) By  facsimile  transmission  (which  must  include  a
        header on which the party sending such  transmission  is indicated):  If
        sent on a  Business  Day after  9:00 AM and no later  than two (2) hours
        prior to the close of customary business hours of the recipient, one (1)
        hour after being sent. Otherwise,  at the opening of the next succeeding
        Business Day.
               (b)      Rejection or refusal to accept delivery and inability to
deliver because of a changed address or facsimile number for which no due notice
was given shall each be deemed receipt of the notice sent.

ARTICLE XIII - REVOLVING CREDIT FUNDINGS AND DISTRIBUTIONS:
        13.1.  Revolving Credit Funding Procedures:  Subject to Section 13.2:
               (a)      The Agent  shall  advise each of the Lenders by no later
than 2:00PM  (Boston Time) on any day on which any  Revolving  Credit Loan other
than a SwingLine Loan is to be made.  Such advice,  in each instance,  may be by
telephone,  provided  that any such  telephonic  advice  shall be  confirmed  in
writing  and shall  include  reference  (as  applicable)  to the  interest  rate
applicable to the proposed Revolving Credit Loan.
               (b)      Each Lender, by no later than the end of business on the
day on which the subject  Revolving  Credit Loan is to be made,  subject to that
Lender's Dollar Commitment, shall transfer that Lender's Percentage Commitment
of the requested Revolving Credit Loan to the Agent.

        13.2   SwingLine Loans
               (a)      In the  event  that,  when a  Revolving  Credit  Loan is
requested,  the aggregate  unpaid balance of the SwingLine Loan is less than the
SwingLine Loan Ceiling,  then the SwingLine Lender may advise the Agent that the
SwingLine  Lender    has    determined  to   include up to  the  amount  of  the
requested   Revolving  Credit  Loan   as   part   of   the   SwingLine     Loan.

                                    - 106 -
<PAGE>

In  such   event,  the  SwingLine  Lender   shall  Transfer  the  amount  of the
requested Revolving Credit Loan to the Agent.
               (b)      The  SwingLine  Loan shall be  converted  to a Revolving
Credit Loan in which all Lenders participate as follows:
                      (i)       Weekly,  the  SwingLine  Lender shall advise the
        Agent that the SwingLine  Loan is to be converted to a Revolving  Credit
        Loan in which all Lenders participate.
                      (ii) At the initiation of a Liquidation, the entire unpaid
        principal  balance  of  the  SwingLine  Loan  shall  be  converted  to a
        Revolving Credit Loan in which all Lenders participate.
In either such event,  the Agent shall advise each Lender of such  conversion as
if,  and  with the same  effect  as if such  conversion  were  the  making  of a
Revolving Credit Loan as provided in Section 13.1.
               (c)      The SwingLine Lender, in separate  capacities,  may also
be the Agent and a Lender.
               (d)      The  SwingLine  Lender,  in its  capacity  as  SwingLine
Lender, is not a "Lender" for any of the following purposes:
                      (i)      Except as otherwise  specifically provided in the
        relevant Section, any distribution pursuant to Section 14.7.
                      (ii)  Determination  of whether the  requisite  Commitment
        Percentage has Consented to action requiring such Consent.
        13.3   Agent's Covering of Fundings:
               (a)      Each  Lender  shall  make  available  to the  Agent,  as
provided herein, that Lender's Commitment Percentage of the following:
                      (i)      Each  Revolving  Credit  Loan,  up to the maximum
        amount of that Lender's Dollar Commitment.
                      (ii) Each L/C Drawing (to the extent that such L/C Drawing
        is not "covered" by a Revolving Credit Loan as provided herein).
               (b)      In all circumstances, the Agent may:

                                    - 107 -
<PAGE>

                      (i)        Assume  that  each  Lender  timely  shall  make
        available  to the Agent  that  Lender's  Commitment  Percentage  of each
        Revolving  Credit Loan  notice of which is provided  pursuant to Section
        12.1  and  shall  make  available,  to the  extent  not  "covered"  by a
        Revolving Credit Loan, its Commitment Percentage of each L/C Drawing.
                      (ii) In reliance upon such assumption,  make available the
        corresponding amount to the Borrowers.
                      (iii) Assume that each Lender  timely shall pay, and shall
        make  available,  to the Agent all other  amounts  which that  Lender is
        obligated to so pay and/or make available  hereunder or under any of the
        Loan Documents.
               (c)        In the  event  that,  in  reliance  upon  any of  such
assumptions,  the Agent makes available  advances or pays a Lender's  Commitment
Percentage of one or more  Revolving  Credit Loans,  L/C drawings,  or any other
amount to be made available hereunder or under any of the Loan Documents,  which
amounts a Lender (a  "DELINQUENT  LENDER")  fails to provide to the Agent within
one (1) Business Day of written notice of such failure, then:
                      (i)      The amount  which had been made  available by the
        Agent is an "AGENT'S COVER".
                      (ii) All  interest  paid by the  Borrowers on account of a
        Revolving  Credit Loan or coverage of a L/C drawing  which  relate to an
        Agent's Cover shall be retained by the Agent until the Agent's Cover has
        been paid with interest by the applicable Delinquent Lender.
                      (iii) The  Delinquent  Lender  shall pay to the Agent,  on
        demand,  interest (based upon a 360 day year and actual days elapsed) at
        a rate equal to the weighted average interest rate paid by the Agent for
        federal funds during the period during which such amount remains unpaid,
        on the  principal  balance of the  Agent's  Cover,  from the date of the
        making of the Agent's Cover until repaid.
                      (iv) The Agent  shall  succeed to all rights to payment to
        which the Delinquent Lender otherwise would have been entitled hereunder
        in respect of those  amounts  paid by or in respect of the  Borrowers on
        account of any Agent's Cover  together with interest  until it is repaid
        by the applicable  Delinquent Lender. Such payments shall be deemed made
        first  towards  the  amounts in respect of which the  Agent's  Cover was

                                    - 108 -
<PAGE>

        provided and only then towards amounts in which the Delinquent Lender is
        then participating. For purposes of distributions to be made pursuant to
        Section  13.4(a) (which  relates to ordinary  course  distributions)  or
        Section  14.7  (which  relates  to   distributions   of  proceeds  of  a
        Liquidation)  below,   amounts  shall  be  deemed   distributable  to  a
        Delinquent Lender (and consequently, to the Agent to the extent to which
        the Agent is then  entitled) at the highest  level of  distribution  (if
        applicable)  at which the  Delinquent  Lender would  otherwise have been
        entitled to a distribution.

                      (v)      Subject to Subsection 13.3(c)(iv), the Delinquent
        Lender shall be entitled to receive any payments from the Borrower which
        do not relate to an Agent's Cover.
               (d)      A Delinquent Lender shall not be relieved,  by virtue of
any Agent's Cover or otherwise,  of any  obligation  of such  Delinquent  Lender
hereunder (all and each of which shall constitute continuing  obligations on the
part of any Delinquent Lender).
               (e)      A Delinquent  Lender may cure its status as a Delinquent
Lender by paying the Agent the aggregate of the following:
                      (i)      The Agent's  Cover (to the extent not  previously
        repaid by the  Borrower  and  retained by the Agent in  accordance  with
        Subsection 13.3(c)(iv), above) with respect to that Delinquent Lender.
                      Plus
                      (ii) Any interest payable under  Subsection  13.3(c)(iii),
                      above.
                      Plus
                     (iii) All such costs and  expenses  as may  be  incurred by
        the  Agent in  the   enforcement  of  the   Agent's  rights against such
        Delinquent Lender.

        13.4 Ordinary Course  Distributions:  Revolving Credit This Section 13.4
applies unless the provisions of Section 14.7 (which relates to distributions in
the event of a Liquidation) become operative.
               (a)       Weekly,  on such day as may be set from time to time by
the Agent (or more  frequently at the Agent's  option) the Agent and each Lender
shall settle up on amounts  advanced and payments  received  under the Revolving
Credit.

                                    - 109 -
<PAGE>

               (b)      The Agent shall  distribute to the SwingLine  Lender and
to each Lender,  their  respective  Pro-Rata shares of interest  payments on the
Revolving  Credit  Loans  when  actually  received  and  collected  by the Agent
(excluding the one (1) Business Day settlement  delay to the extent provided for
in  Section  8.6(a),  which  shall be for the  account of the Agent  only).  For
purposes of calculating  interest due to a Lender, that Lender shall be entitled
to receive interest on the actual amount  contributed by that Lender towards the
principal  balance  of  the  Revolving  Credit  Loans  outstanding   during  the
applicable period covered by the interest payment made by the Borrowers. Any net
principal  reductions  to the  Revolving  Credit Loans  received by the Agent in
accordance  with the Loan  Documents  during such  period  shall not reduce such
actual amount so  contributed,  for purposes of  calculation  of interest due to
that Lender,  until the Agent has  distributed to that Lender its Pro-Rata share
thereof.
               (c)      The Agent shall  distribute  fees paid on account of the
Revolving Credit, as follows:
                      (i)    Unused (Line) Fee:      Pro-Rata to the Lenders.
                      (ii)   Early Termination Fee:  Pro-Rata to the Lenders.
                      (iii)  Underwriting Fee:       As provided in separate fee
                                                     letter  between  the  Agent
                                                     and the Lead Borrower.
                      (iv)   Agency Fee:             As provided in separate fee
                                                     letter  between  the  Agent
                                                     and the Lead Borrower.
               (d)      No  Lender  shall  have  any  interest  in,  or right to
receive  any  part  of the  Underwriting  Fee or  Agent's  Fee to be paid by the
Borrowers to the Agent pursuant to the separate fee letters.
               (e)      Any amount  received by the Agent as  reimbursement  for
any cost or expense (including without limitation,  reasonable  attorneys' fees)
shall be distributed by the Agent to the Person  entitled to such  reimbursement
as provided in this Agreement.
               (f)       Each  distribution  pursuant  to this  Section  13.4 is
subject to Section 13.3(c), above (which relates to Delinquent Lenders).

                                    - 110 -
<PAGE>

ARTICLE XIV - ACCELERATION AND LIQUIDATION:
        14.1   Acceleration Notices
               (a)        The  SuperMajority  Lenders  may  give  the  Agent  an
Acceleration Notice at any time following the occurrence of an Event of Default.
Such notice may be by multiple counterparts, provided that counterparts executed
by the  requisite  Lenders are received by the Agent within a period of five (5)
consecutive Business Days.

        14.2 Acceleration.  Unless stayed by judicial or statutory process,  the
Agent  shall  Accelerate  the  Liabilities  under  the Loan  Documents  within a
commercially  reasonable  time following the Agent's  receipt of an Acceleration
Notice from the SuperMajority Lenders, in compliance with Section 14.1(a).

        14.3  Initiation  of    Liquidation   Unless   stayed   by  judicial  or
statutory  process,  a  Liquidation  shall be  initiated  by the Agent  within a
commercially reasonable time following Acceleration of the Liabilities.

        14.4   Actions At and  Following  Initiation of  Liquidation  (a) At the
               initiation of a Liquidation:
                      (i)      The unpaid  principal  balance  of the  SwingLine
        Loan (if  any)  shall be  converted,  pursuant  to  Section  13.1,  to a
        Revolving Credit Loan in which all Lenders participate.
                      (ii) The  Agent  and the  Lenders  shall  "net  out"  each
        Lender's respective contributions towards the Revolving Credit Loans, so
        that  each  Lender  holds  that  Lender's  Revolving  Credit  Commitment
        Percentage of the Revolving Credit Loans and advances.
               (b)      Following the  initiation of a Liquidation,  each Lender
shall  contribute  towards  any  L/C  thereafter  honored  and  not  immediately
reimbursed by the Borrower that Lender's Revolving Credit Commitment  Percentage
of such honoring.

                                    - 111 -
<PAGE>

        14.5   Agent's Conduct of Liquidation
               (a)      Any Liquidation shall be conducted by the Agent with the
advice and assistance of the Lenders.
               (b)      The Agent may establish one or more Nominees to "bid in"
or otherwise acquire ownership to any Post Foreclosure Asset.
               (c)      The Agent  shall  manage  the  Nominee  and  manage  and
dispose of any Post  Foreclosure  Assets with a view towards the  realization of
the economic  benefits of the  ownership of the Post  Foreclosure  Assets and in
such regard, the Agent and/or the Nominee may operate, repair, manage, maintain,
develop,  and dispose of any Post Foreclosure  Asset in such manner as the Agent
determines is appropriate under the circumstances.
               (d)      The Agent may decline to undertake or to continue taking
a course of action or to execute an action plan  (whether  proposed by the Agent
or by any Lender) unless indemnified to the Agent's  satisfaction by the Lenders
against any and all  liability and expense which may be incurred by the Agent by
reason of taking or continuing to take that course of action or action plan.
               (e)       The  Agent  and  each  Lender  shall  execute  all such
instruments and documents not inconsistent with the provisions of this Agreement
as the Agent  and/or the  Nominee  reasonably  may request  with  respect to the
creation and governance of any Nominee, the conduct of the Liquidation,  and the
management and disposition of any Post Foreclosure Asset.

        14.6   Distribution of Liquidation Proceeds:
               (a)      The Agent may  establish one or more  reasonably  funded
reserve  accounts into which proceeds of the conduct of any  Liquidation  may be
deposited in  anticipation of future expenses which may be incurred by the Agent
in the  exercise  of rights as a secured  creditor  of the  Borrowers  and prior
claims which the Agent anticipates may need to be paid.
               (b)        The  Agent  shall   distribute  the  proceeds  of  any
Liquidation to itself and the Lenders.
               (c)      In    accordance   with   the   relative  priorities set
forth    in   Section    14.7,     each    Lender   shall,   on    the   written
request of the  Agent   and/or    any   Nominee,  but    not    more  frequently

                                    - 112 -
<PAGE>

  than once each  month,  reimburse  the Agent
and/or any Nominee, Pro-Rata, for any cost or expense reasonably incurred by the
Agent and/or the Nominee in the conduct of a Liquidation,  if such amount is not
covered out of current proceeds of the Liquidation.

        14.7 Relative  Priorities To Proceeds of  Liquidation       The relative
priorities  in which the  proceeds  of a  Liquidation  are to be applied  are as
follows:
               (a)          First:   To the Agent as reimbursement for all Costs
                                     of Collection incurred by the Agent and  to
                                     any funded reserve established pursuant  to
                                     Section 14.6(a) and on  account of  payment
                                     of the Agency Fee.
               (b)          Second:  The  SwingLine  Lender, on  account  of any
                                     SwingLine   loans   not   converted      to
                                     Revolving    Credit     Loans   pursuant to
                                     Section 14.4(a)(i).
               (c)          Third:   The Lenders, Pro-Rata, on account   of  the
                                     principal     balance  of  Revolving Credit
                                     Loans.
               (d)          Fourth:  The   Lenders, Pro-Rata,  on   account   of
                                     accrued interest on the  Revolving   Credit
                                     Loans.
               (e)          Fifth:   The Lenders, Pro-Rata,  on account  of  all
                                     fees,   including  without  limitation  the
                                     Unused  (Line) Fee and  Early   Termination
                                     Fee,  and  Costs of  Collection incurred by
                                     the Lenders.
               (f)          Sixth:   To  any  other  Liabilities  under the Loan
                                     Documents.

ARTICLE XV - THE AGENT:
        15.1   Appointment of Agent
               (a)      Each Lender  appoints and designates BBRF as the "Agent"
hereunder and under the other Loan Documents.
               (b)     Each Lender authorizes the Agent:
                      (i)      To execute  those of the Loan  Documents  and all
        other instruments relating thereto to which Agent is a party.

                                    - 113 -
<PAGE>

                      (ii) To take such  action on behalf of the  Lenders and to
        exercise  all  such  powers  as are  expressly  delegated  to the  Agent
        hereunder  and in the other Loan  Documents  and all related  documents,
        together with such other powers as are reasonably incident thereto.

        15.2   Responsibilities of Agent
               (a)      The Agent shall have principal  responsibilities for and
primary authority for the  administration of the credit facilities  contemplated
by the Loan  Documents  and for all  matters  for which  the  Agent is  accorded
responsibility  under this  Agreement,  including the conduct of the Liquidation
and the distribution of the proceeds of such Liquidation.
               (b)      The Agent shall have no duties or  responsibilities  to,
or any fiduciary  relationship  with, any Lender except for those  expressly set
forth in this Agreement.
               (c)       Neither  the Agent nor any of its  affiliates  shall be
responsible to any Lender for any of the following:
                      (i)       Any  recitals,  statements,  representations  or
        warranties made by the Borrowers, or any other person.
                      (ii) any appraisals or other  assessments of the assets of
        the  Borrowers  or of anyone else  responsible  for or on account of the
        Liabilities.
                      (iii) The  value,  validity,  effectiveness,  genuineness,
        enforceability,  or  sufficiency of the Loan  Agreement,  any other Loan
        Documents or any other document referred to or provided for therein.
                      (iv) Any  failure by the  Borrowers,  or any other  person
        (other than the Agent) to perform their respective obligations under the
        Loan Documents.
               (d)      The Agent may employ attorneys,  accountants,  and other
professionals and agents and  attorneys-in-fact and shall not be responsible for
the  negligence  or  misconduct of any such  attorneys,  accountants,  and other
professionals  or  agents  or  attorneys-in-fact  selected  by  the  Agent  with
reasonable care. No such attorney,  accountant,  other  professional,  agent, or
attorney  in fact shall be  responsible  for any  action  taken or omitted to be
taken by any other such Person.
               (e)      Neither  the   Agent,  nor   any   of   its   directors,
officers,   or    employees   shall    be    responsible    for    any    action

                                    - 114 -
<PAGE>

taken  or  omitted  to  be  taken by any other of them nor for any action  taken
or omitted to be taken in  connection  herewith,  or with  respect to the credit
facility contemplated by this Agreement,  except for any action taken or omitted
to be taken as to which a final judicial determination has been or is made (in a
proceeding  in which such person has had an  opportunity  to be heard) that such
Person had acted in a grossly  negligent  manner,  in actual  bad  faith,  or in
willful misconduct.
               (f)      The Agent shall have no  responsibility in any event for
more funds than the Agent actually receives and collects.
               (g)      The Agent,  in its  separate  capacity as Lender,  shall
have the same rights and powers hereunder as any other Lender.

        15.3   Concerning Distributions By the Agent
               (a)      The Agent, in its reasonable  discretion  based upon its
determination  of the  likelihood  that  additional  payments  will be received,
expenses  incurred,  and/or  claims made by third parties to all or a portion of
such proceeds,  may delay the distribution of any payment received on account of
the Liabilities.
               (b)      The Agent may disburse funds prior to  determining  that
the  sums  which  the  Agent   expects  to  receive   have  been   finally   and
unconditionally  paid to the  Agent.  If and to the  extent  that the Agent does
disburse funds and it later becomes apparent that the Agent did not then receive
a payment  in an amount  equal to the sum paid out,  then any Lender to whom the
Agent made the funds  available,  on demand from the Agent,  shall refund to the
Agent the sum paid to that person that exceeds the amount  actually  received by
the Agent.
               (c)      If, in the opinion of the Agent, the distribution of any
amount  received by the Agent might involve the Agent in liability,  or might be
prohibited  hereby,  or might be  questioned  by any Person,  then the Agent may
refrain from making  distribution  until the Agent's right to make  distribution
has bee adjudicated by a court of competent jurisdiction.
               (d)      The proceeds of any  Lender's  exercise of any right of,
or in the nature of, set-off shall be deemed, First, to the extent that a Lender
is entitled to any distribution  hereunder,  to constitute such distribution and
Second,  shall be shared  with the  other  Lenders  Pro-Rata  based  upon  their
respective  contributions to the then principal  balance of the Revolving Credit
(and shall be deemed distributions by the Agent hereunder).

                                    - 115 -
<PAGE>

               (e)       Each  Lender  acknowledges  that the  crediting  of the
Borrowers  with the "proceeds" of any  transaction  in which a Post  Foreclosure
Asset is  acquired  is a  non-cash  transaction  and that,  in  consequence,  no
distribution of such "proceeds" will be made by Agent to any Lender.
               (f)      In the event that (x) a court of competent  jurisdiction
shall adjudge that any amount  received and distributed by Agent is to be repaid
or  disgorged,  or (y) the  Lenders,  acting  by  Consent  of the  SuperMajority
Lenders, determine to effect such repayment or disgorgement, then each Lender to
which any such distribution shall have been made shall repay, to the Agent, that
Lender's  Pro-Rata share of the amount so adjudged or determined to be repaid or
disgorged.

        15.4 Dispute Resolution:  Any dispute among the Lenders and/or the Agent
hereunder,   under  any  of  the  other  Loan   Documents,   or  concerning  the
interpretation,   administration,   or  enforcement  of  the  credit  facilities
contemplated by this Agreement or the  interpretation  or  administration of any
Loan Document which cannot be resolved  amicably shall be resolved in the United
States District Court for the District of Massachusetts, sitting in Boston or in
the Superior Court of Suffolk  County,  Massachusetts,  to the  jurisdiction  of
which courts all parties hereto hereby submit.

        15.5 Distributions of Notices and of Documents The Agent will forward to
each Lender,  promptly after the Agent's receipt thereof,  a copy of each notice
or other  document  furnished  to the  Agent  pursuant  to the  Loan  Documents,
including monthly,  quarterly, and annual financial statements received from the
Borrower  pursuant  to  Article  V of  this  Agreement,  other  than  any of the
following:
               (a)       Routine  communications  associated  with  requests for
Revolving Credit Loans and/or the issuance of L/C's.
               (b)       Routine and nonmaterial communications;
               (c)       Any  notice  or  document  required  by any of the Loan
Documents to be furnished to the Lenders by the Lead Borrower or any Borrower.

                                    - 116 -
<PAGE>

               (d)       Any   notice   or   document of  which  the  Agent  has
knowledge that  such notice or  document had been forwarded to the Lenders other
than by the Agent.

        15.6   Confidential Information:
               Each Lender will maintain, as confidential, all of the following:
               (a)       Proprietary  approaches,  techniques,  and  methods  of
analysis  which are  applied by the  Agent in the administration  of  the credit
facility contemplated by the Loan Agreement.
               (b)       Proprietary  forms and formats utilized by the Agent in
providing reports to the Lenders pursuant hereto, which forms or formats are not
of general currency.
               (c)        Confidential  information  provided  by  any  Borrower
pursuant to the Loan Documents,  other than any information  which becomes known
to the general public through sources other than that Lender.  Nothing  included
herein shall prohibit the disclosure of any such  information as may be required
to  be  provided  by  judicial  process  or  by  regulatory  authorities  having
jurisdiction over any party to this Agreement.

        15.7  Reliance  by Agent.  The Agent  shall be entitled to rely upon any
certificate,  notice or other document (including any cable, telegram, telex, or
facsimile)  reasonably  believed  by the Agent to be genuine  and correct and to
have been signed or sent by or on behalf of the proper  person or  persons,  and
upon advice and statements of attorneys,  accountants and other experts selected
by the Agent.  As to any matters not expressly  provided for in this  Agreement,
any Loan Document, or in any other document referred to therein, the Agent shall
in all events be fully  protected in acting or in  refraining  from  acting,  in
accordance with the applicable Consent required by this Agreement.  Instructions
given with the requisite Consent shall be binding on all Lenders.

        15.8   Non-Reliance on Agent and Other Lenders
               (a)      Each Lender  represents  to all other Lenders and to the
Agent that such Lender:

                                    - 117 -
<PAGE>

                      (i)         Independently  and  without  reliance  on  any
        representation or act by the Agent or by any other Lender,  and based on
        such documents and  information  as that Lender has deemed  appropriate,
        has made such  Lender's own  appraisal of the  financial  condition  and
        affairs of the Borrowers  and decision to enter into this  Agreement and
        the other Loan Documents.
                      (ii) Has  relied  upon  that  Lender's  review of the Loan
        Documents  and such  review of the Loan  Documents  by  counsel  to that
        Lender as that Lender deemed appropriate under the circumstances.
               (b)      Each Lender agrees that such Lender,  independently  and
without  reliance  upon the  Agent or any  other  Lender,  and  based  upon such
documents and  information  as such Lender shall deem  appropriate  at the time,
will  continue to make such Lender's own  appraisals of the financial  condition
and affairs of the Borrowers when determining whether to take or not to take any
discretionary action under this Agreement or any other Loan Document.
               (c)      The Agent,  in the  discharge  of its duties  hereunder,
shall not be required to make inquiry of, or to inspect the  properties or books
of, any Person.
               (d)      Except for notices,  reports,  and other  documents  and
information  expressly  required  to be  furnished  to the  Lenders by the Agent
hereunder  (as to  which,  see  Section  15.5),  the  Agent  shall  not have any
affirmative  duty or  responsibility  to provide  any Lender  with any credit or
other  information  concerning  any Person which may come into the possession of
the Agent or any of its Affiliates.
               (e)        Each  Lender  shall  have  reasonable  access  to  all
documents relating to the Agent's performance of the Agent's duties hereunder at
such Lender's request.

        15.9 Indemnification.  Without limiting the liabilities of the Borrowers
under  any of the  Loan  Documents,  each  Lender  shall  indemnity  the  Agent,
Pro-Rata, for any and all liabilities,  obligations, losses, damages, penalties,
actions,  judgments,  suits,  costs,  expenses or  disbursements  of any kind or
nature whatsoever  (including  reasonable attorneys' fees and expenses and other
out-of-pocket expenditures) which may at any time be imposed on, incurred by, or
asserted  against  the Agent and in any way  relating  to or arising out of this
Agreement  or any  other  Loan  Document  or any  documents  contemplated  by or

                                    - 118 -
<PAGE>

referred to therein or the transactions  contemplated thereby or the enforcement
of any of the terms hereof or of any other documents, provided, however, that no
Lender  shall be liable for any of the  foregoing  to the extent that any of the
foregoing arises from any action taken or omitted to be taken by the Agent as to
which a final  judicial  determination  has been or is made (in a proceeding  in
which the Agent has had an  opportunity to be heard) that the Agent had acted in
a  grossly  negligent  manner  or in  bad  faith,  or  has  engaged  in  willful
misconduct.

        15.10  Resignation of Agent
               (a)      The Agent may resign at any time by giving 60 days prior
written notice thereof to the Lenders and the Lead Borrower. Upon receipt of any
such notice of resignation, the Required Lenders shall have the right to appoint
a successor Agent (provided,  that no such consent of the Lead Borrower shall be
requested if an Event of Default has occurred,  and provided,  further that such
consent shall be deemed given if no written  objection is received  within seven
days  of the  Lead  Borrower's  receipt  of  notice  of such  successor).  If no
successor  Agent  shall  have been so  appointed  and shall have  accepted  such
appointment  within 30 days after the  giving of notice by the  Agent,  then the
resigning  Agent may  appoint a  successor  Agent,  which  shall be a  financial
institution with an office in the  Northeastern  United States having a combined
capital and surplus in excess of  $500,000,000.00.  The consent of the Borrowers
otherwise required by this Section 15.10(a) shall not be required if an Event of
Default has occurred.
               (b)        Upon the  acceptance  of any  appointment  as an Agent
hereunder by a successor Agent,  such successor shall thereupon  succeed to, and
become  vested  with,  all the  rights,  powers,  privileges,  and duties of the
(resigning)  Agent so replaced,  and the  (resigning)  Agent shall be discharged
from the  (resigning)  Agent's duties and obligations  hereunder,  other than on
account of any responsibility for any action taken or omitted to be taken by the
(resigning) Agent as to which a final judicial determination has been or is made
(in a proceeding in which the  (resigning)  Agent has had an  opportunity  to be
heard) that such Agent had acted in a grossly  negligent  manner or in bad faith
or has engaged in willful misconduct.

                                    - 119 -
<PAGE>

               (c)      After the retiring Agent's  resignation,  the provisions
of this Agreement  shall continue in effect for the retiring  Agent's benefit in
respect of any actions taken or omitted to be taken by it while it was acting as
Agent.

ARTICLE XVI - ACTION BY AGENT; CONSENTS; AMENDMENTS; WAIVERS:
        16.1   Administration of Credit Facilities
               (a)        Except  as  otherwise  specifically  provided  in this
Agreement,  the Agent may take any action  with  respect to the credit  facility
contemplated  by the Loan  Documents as the Agent  determines to be  appropriate
within  its area of  responsibility  and  authority,  as set  forth in  Sections
15.2(b) and 15.2(a),  provided,  however, the Agent is not under any affirmative
obligation to take any action which it is not required by this  Agreement or the
other Loan Documents specifically to so take.
               (b)        Except  as  specifically  provided  in  the  following
Sections of this  Agreement,  whenever this Agreement or any other Loan Document
provides  that  action  may be taken  or  omitted  to be  taken  in the  Agent's
discretion, the Agent shall have the sole right to take, or refrain from taking,
such action without, and notwithstanding, any vote of the Lenders:

     Actions Described in Section            Type of Consent Required
     ----------------------------            ------------------------
                 16.2                        Majority Lenders
                 16.3                        SuperMajority Lenders
                 16.5                        Unanimous Consent
                 16.6                        Consent of SwingLine Lender


               (c)      The  rights  granted to the  Lenders  in those  sections
referenced in Section  16.1(b)  shall not otherwise  limit or impair the Agent's
exercise of its discretion under the Loan Documents.
               (d)      The Lenders agree that, subject to Section 16.3(a),  any
advance under the Revolving  Credit which results in a Permissible  Overloan may
be made by the Agent in its  discretion  without  the Consent of the Lenders and
that each Lender shall be bound thereby.

                                    - 120 -
<PAGE>

        16.2 Actions Requiring Consent or Direction of Majority Lenders.  Except
as  otherwise  provided  in this  Agreement,  the  Consent or  direction  of the
Majority Lenders is required for any amendment,  waiver,  or modification of any
Loan Document.

        16.3 Actions  Requiring  Consent or Direction of SuperMajority  Lenders.
The Consent or direction of the SuperMajority Lenders is required as follows:
               (a)      To permit a Permissible  Overloan to be outstanding  for
more than 60  consecutive  Business  Days or more than twice in any twelve month
period.
               (b)      If an Event of Default  (other  than an Event of Default
arising  under  Section  10.11)  shall  have  occurred  and be  continuing,  the
SuperMajority  Lenders  may  direct the Agent to suspend  the  Revolving  Credit
(including the making of any Permissible Overloans),  whereupon, as long as such
Event of Default exists and is continuing,  Revolving Credit Loans shall be made
and  L/C's  shall be  issued,  amended,  or  renewed  only with  Consent  of the
SuperMajority Lenders.
               (c)      If an Event of Default  has  occurred  and not been duly
waived, the SuperMajority Lenders may direct the Agent to:
                      (i)    Give   an   Acceleration Notice in accordance  with
        Section 14.1(a); or
                      (ii)   Increase  the  rate of interest to the default rate
        of   interest  as  provided  in,  and to the  extent  permitted  by, the
        Loan Agreement.

        16.4   Intentionally Deleted.

        16.5 Actions  Requiring or Directed By  Unanimous  Consent.  None of the
following  may  take  place  except  with the  written  consent  of each  Lender
adversely affected thereby or with Unanimous Consent.
               (a)      Any increase in any Lender's  Dollar  Commitment  (other
than  by  reason  of  the   application   of  Section  16.9  (which  deals  with
Nonconsenting  Lenders)  or  Section  17.1  (which  deals with  assignments  and
participations)).
               (b)      Any decrease in any interest  rate or fee payable to the
Lenders on account of the Revolving Credit Loans.

                                    - 121 -
<PAGE>

               (c)      Any extension of the Maturity Date.
               (d)      Any  forgiveness  of all or any  portion of any  payment
               Liability.   (e)  Any  release  of  a  material  portion  of  the
               Collateral not otherwise
permitted, required or provided for in the Loan Documents.
               (f)      Any amendment of the definition of the terms  "Borrowing
Base", or  "Availability"  or of any definition of any component  thereof,  such
that more credit would be available to the Borrowers,  based on the same assets,
than  would  have been  available  to the  Borrowers  immediately  prior to such
amendment, it being understood, however, that:
                      (i)      The foregoing  shall not limit the  adjustment by
        the Agent of any Reserve in the Agent's  administration of the Revolving
        Credit as otherwise permitted by this Agreement; and
                      (ii) The  foregoing  shall not prevent  the Agent,  in its
        administration of the Revolving Credit,  from restoring any component of
        the Borrowing Base which had been lowered by the Agent back to the value
        of such  component  as stated in this  Agreement  or to an  intermediate
        value.
               (g)      Any  release of any Person  obligated  on account of the
Liabilities;
               (h)      The making  of any Revolving   Credit  Loan  which, when
made,  exceeds   Availability  and  is not  a  Permissible  Overloan,  provided,
however, that
                      (i)     No Consent  shall be required in  connection  with
        the making of  any    Revolving Credit Loan to "cover" any honoring of a
        drawing under any L/C;  and
                     (ii)     Each  Lender  acknowledges  that subsequent to the
        making    of    a    Revolving    Credit   Loan   which     does    not
        constitute a Permissible  Overloan,    the unpaid  principal  balance of
        the  Loan  Account  may exceed  Borrowing   Base  on account  of changed
        circumstances   beyond  the  control  of  the  Agent (such as a  drop in
        collateral value).
               (i)      The waiver of the  obligation of the Borrowers to reduce
the unpaid principal balance of loans under the Revolving Credit to an amount so
that a Permissible  Overloan does not exceed 5% of the Loan Ceiling,  or subject
to the time limits  included in Section  16.3(a)  (which  relates to the outside
limit on the number of consecutive Business Days that a Permissible Overloan may
be outstanding);

                                    - 122 -
<PAGE>

               (j)      Any  amendment of this Article 16;
               (k)      Amendment of the definitions of the following terms:
                        "Loan to Collateral Reserve"
                        "Majority Lender"
                        "Permissible Overloan"
                        "SuperMajority Lenders"
                        "Unanimous Consent"
               (l)      Any  continuation of the Revolving  Credit following the
occurrence  and during the  continuance  of an Event of  Default  under  Section
10.11.

        16.6  Actions  Requiring  SwingLine  Lender  Consent  No  action  under,
amendment of, or waiver of compliance  with,  any provision of this Agreement or
any of the other  Loan  Documents  which  affects  the  SwingLine  Lender may be
undertaken without the Consent of the SwingLine Lender.

        16.7   Actions Requiring Agent's Consent
               (a)      No action  under,  amendment of, or waiver of compliance
with, any provision of this  Agreement or any of the other Loan Documents  which
affects  the Agent in its  capacity  as an Agent may be  undertaken  without the
consent of the Agent; and
               (b)      No action  referenced  herein which  affects the rights,
duties,  obligations or liabilities of the Agent shall be effective  without the
written consent of the Agent.

        16.8   Miscellaneous Actions:
               (a)       Notwithstanding  any other provision of this Agreement,
no single Lender independently shall exercise any right of action or enforcement
against or with respect to the Borrowers.
               (b)        The  Agent  shall be fully  justified  in  failing  or
refusing  to take  action  under this  Agreement  or any other Loan  Document on
behalf of any Lender unless the Agent shall first
                      (i)  Receive such clear, unambiguous, written instructions
        as the Agent deems appropriate; and

                                    - 123 -
<PAGE>

                      (ii) Be  indemnified  to the Agent's  satisfaction  by the
        Lenders  against any and all liability and expense which may be incurred
        by the Agent by reason of taking or  continuing to take any such action,
        unless such action had been grossly negligent,  or in bad faith or shall
        constitute willful misconduct.
               (c)      The Agent may establish  reasonable  procedures  for the
providing of direction and instructions from the Lenders to the Agent, including
the Agent's reliance on multiple counterparts, facsimile transmissions, and time
limits within which such direction and instructions must be received in order to
be included in a determination of whether the requisite Commitment Percentage of
Lenders has provided its direction or instructions.

        16.9   Nonconsenting Lenders:
               (a)      In the event  that a Lender  (in this  Section  16.9,  a
"NonConsenting  Lender") does not provide its Consent to a proposal by the Agent
to take action which  requires  consent under this Article XVI, then one or more
Lenders who provided Consent to such action may require the assignment,  without
recourse and in accordance with the procedures  outlined in Section 17.1, of the
NonConsenting  Lender's  Commitment  on fifteen (15) days written  notice to the
Agent and to the NonConsenting Lender.
               (b)      At the end of such  fifteen  (15) days,  the Lenders who
have given such written notice shall Transfer the following to the NonConsenting
Lender, but only if the NonConsenting Lender delivers to the Agent the Revolving
Credit Note held by the NonConsenting Lender:
                      (i)  Such  NonConsenting  Lender's  Pro-Rata  share of the
        principal and interest of the Revolving Credit Loans.
                      (ii) All fees due to the NonConsenting  Lender to the date
        of such assignment.
                     (iii) Any  out-of-pocket  costs  and expenses for which the
        NonConsenting Lender is entitled to reimbursement from the Borrowers.
               (c)      In the  event  that the  NonConsenting  Lender  fails to
deliver to the Agent the Revolving Credit Note held by the NonConsenting  Lender
as provided in Section 16.9(b), then:

                                    - 124 -
<PAGE>

                      (i)      The amount  otherwise  to be  Transferred  to the
        NonConsenting  Lender shall be  Transferred to the Agent and held by the
        Agent,  without interest,  to be turned over to the NonConsenting Lender
        upon  delivery of the Revolving  Credit Note held by that  NonConsenting
        Lender;
                      (ii) The Revolving  Credit Note held by the  NonConsenting
        Lender shall have no force or effect whatsoever;
                     (iii) The    NonConsenting  Lender  shall  cease  to  be  a
                      "Lender";  and (iv) The Lender(s)  which have  Transferred
                      the amount to the Agent as
        described above shall succeed to all rights and become subject to all of
        the obligations of the NonConsenting Lender as "Lender".
               (d)      In the event  that more  than one (1)  Lender  wishes to
require such assignment,  the NonConsenting Lender's Commitment shall be divided
amongst such Lenders, Pro-Rata based upon their respective Commitments, with the
Agent coordinating such transaction.
               (e)      The    Agent  shall  coordinate  the  retirement  of the
Revolving  Credit  Note held by the  NonConsenting  Lender and the  issuance  of
Revolving  Credit Notes to those Lenders  which  "take-out"  such  NonConsenting
Lender, provided,  however, that no processing fee otherwise payable as provided
in Section 17.1(c) shall be due under such circumstances.

ARTICLE XVII ASSIGNMENTS AND PARTICIPATIONS
        17.1   Assignments and Assumptions
               (a)      Except as provided herein,  each Lender (in this Section
17.1,  an "ASSIGNING  LENDER") may assign to one or more Eligible  Assignees (in
this  Section  17.1,  an "ASSIGNEE  LENDER")  all or a portion of such  Lender's
interests,  rights  and  obligations  under  this  Agreement  and the other Loan
Documents (including all or a portion of its Commitment) and the same portion of
the Revolving  Credit Loans at the time owing to it, and of the Revolving Credit
Note held by it, provided that:
                      (i)      The Agent  shall  have  given  its prior  written
        consent to such  assignment,  which  consent  shall not be  unreasonably
        withheld,  but need not be given if the proposed assignment would result

                                    - 125 -
<PAGE>

        in any Assignee  Lender's  having a Dollar  Commitment  of less than the
        "minimum hold" amount specified in Section 17.1(a)(iv).
                      (ii) If no Event of Default has occurred,  such assignment
        shall be subject to the consent of the Lead Borrower. Such consent shall
        not be unreasonably  withheld or delayed and shall be deemed given if no
        written  objection  is  received  within  seven  (7)  days  of the  Lead
        Borrower's receipt of notice of such proposed assignment.
                     (iii) Each  such assignment shall be of a constant, and not
        a  varying,   percentage  of  all  the  Assigning  Lender's  rights  and
        obligations under this Agreement.
                      (iv) Following the  effectiveness of such assignment,  the
        Assigning Lender's Dollar Commitment (if not an assignment of all of the
        Assigning Lender's Commitment) shall not be less than $ 10 Million.
               (b)      The parties to such assignment shall execute and deliver
to the Agent,  for  recording in the  Register,  an  Assignment  and  Acceptance
substantially  in the form of EXHIBIT 17.1,  annexed hereto (an  "Assignment and
Acceptance"):
               (c)      The Assigning  Lender shall  deliver to the Agent,  with
such Assignment and Acceptance, the Revolving Credit Note held by such Assigning
Lender and the Agent's processing fee of $3,000.00  provided,  however,  that no
such  processing  fee  shall be due  where  the  Assigning  Lender is one of the
Lenders at the initial execution of this Agreement.
               (d)       From and  after  the  effective  date  specified  in an
Assignment  and  Acceptance  which has been  executed,  delivered,  and recorded
(which  effective date the Agent may delay by up to five (5) Business Days after
the delivery of such Assignment and Acceptance):
                      (i)    The Assignee Lender;
                                    (A)   Shall be a party to this Agreement and
               the   other  Loan  Documents (and  to  any  amendments  of   this
               Agreement  and  the   other  Loan  Documents)  as fully as if the
               Assignee  Lender had executed each.
                                    (B)   To  the  extent  of   the   Commitment
               assigned by such Assignment and  Acceptance,  have the rights and
               obligations of a Lender hereunder.

                                    - 126 -
<PAGE>

                             (ii) The  Assigning  Lender shall be released  from
               the Assigning  Lender's  obligations under this Agreement and the
               other Loan Documents to the extent of the Commitment  assigned by
               such Assignment and Acceptance.
                             (iii)  The Agent  shall  undertake  to  obtain  and
               distribute  replacement  Revolving Credit Notes to such Assigning
               Lender and Assignee  Lender.  (e) Each party to an Assignment and
               Acceptance confirms to and agrees with
all parties to this  Agreement as to those  matters  which are set forth in such
Assignment and Acceptance.
               (f)      The Agent shall  maintain a copy of each  Assignment and
Acceptance  delivered to it and a register or similar list (the  "REGISTER") for
the recordation of the names and addresses of the Lenders and the Commitment of,
and  principal  amount of the  Revolving  Credit Loans  hereunder  owing to, the
Lenders from time to time. As between the Agent and the Lenders,  the entries in
the Register  shall be  conclusive,  in the absence of manifest  error,  and the
Agent and the  Lenders  may treat  each  Person  whose name is  recorded  in the
Register  as a  "Lender"  hereunder  for all  purposes  of this  Agreement.  The
Register shall be available for inspection by the Lenders at any reasonable time
and from time to time upon reasonable prior notice.
               (g)      The  Assigning  Lender  and  Assignee  Lender,  directly
between  themselves,  shall make all  appropriate  adjustments  in payments  for
periods prior to the effective date of an Assignment and Assumption.

        17.2 Participations.  Each Lender may sell participations to one or more
financial  institutions  in  all  or a  portion  of  such  Lender's  rights  and
obligations under the Loan Agreement,  provided that no such participation shall
include any provision which accords the Person purchasing such participation the
right to consent to any  action,  amendment,  or waiver  which is subject to any
requirement  herein for approval by all or a requisite  number or  proportion of
the Lenders.  No such sale of a  participation  shall relieve a Lender from that
Lender's obligations hereunder nor obligate the Agent to any Person other than a
Lender.

                                    - 127 -
<PAGE>

        17.3 Pledges To Federal Reserve Banks Nothing included in this Agreement
shall prevent or limit any Lender,  to the extent that such Lender is subject to
any of the twelve Federal  Reserve Banks  organized  under  sub-section 4 of the
Federal  Reserve  Act (12 U.S.C.  sub-section  341),  from  pledging  all or any
portion of that  Lender's  interest and rights under this  Agreement to any such
Federal  Reserve  Bank,  provided,  however,  that  neither  such pledge nor the
enforcement  thereof  shall  release the  pledging  Lender from its  obligations
hereunder or under any of the Loan Documents.

ARTICLE XVIII - TERM:
        18.1. Termination of Revolving Credit. The Revolving Credit shall remain
in effect (subject to suspension as provided in Section 2.4(g) hereof) until the
Termination Date.

        18.2.  Effect of  Termination.  On the  Termination  Date, the Borrowers
shall pay the Agent (whether or not then due), in immediately  available  funds,
all then  outstanding  Liabilities  including,  without  limitation:  the entire
balance of the Loan  Account;  any accrued and unpaid Line Fee; any payments due
on account of the  indemnification  obligations  included in Section 2.9(e); and
all  unreimbursed  costs and  expenses of the Agent and of each Lender for which
the Borrowers are responsible;  and shall make such arrangements  concerning any
L/C's then outstanding as are reasonably  satisfactory to the Agent . Until such
payment, all provisions of this Agreement, other than those contained in Article
II which  place an  obligation  on the Agent and any Lender to make any loans or
advances or to provide  financial  accommodations  under the Revolving Credit or
otherwise,  shall  remain in full force and effect until all  Liabilities  shall
have been paid in full.  The  release  by the  Agent of the  security  and other
collateral  interests  granted the Agent by the Borrowers  hereunder may be upon
such conditions and indemnifications as the Agent may reasonably require.

ARTICLE XIX - GENERAL:
        19.1.  Protection  of  Collateral.  The  Agent  has  no  duty  as to the
collection or protection  of the  Collateral  beyond the safe custody of such of
the  Collateral  as may come into the  possession of the Agent and shall have no
duty as to the  preservation of rights against prior parties or any other rights
pertaining  thereto.  The   Agent   may  include  reference  to  the   Borrowers

                                    - 128 -
<PAGE>

(and  may  utilize  any  logo  or other  distinctive  symbol associated with the
Borrowers)  in  connection  with  any  advertising,   promotion,   or  marketing
undertaken by the Agent with the Lead Borrower's approval,  which approval shall
not be unreasonably withheld or delayed.

        19.2.  Successors and Assigns.  This Agreement shall be binding upon the
Borrowers and the Borrowers' representatives,  successors, and assigns and shall
inure to the benefit of the Agent and each Lender and the respective  successors
and assigns of each provided,  however,  no trustee or other fiduciary appointed
with respect to the Borrowers shall have any rights hereunder. In the event that
the Agent or any Lender  assigns or transfers  its rights under this  Agreement,
the  assignee  shall  thereupon  succeed to and become  vested  with all rights,
powers,  privileges,  and duties of such  assignor  hereunder  and such assignor
shall  thereupon  be  discharged  and relieved  from its duties and  obligations
hereunder.

        19.3.  Severability.  Any  determination  that  any  provision  of  this
Agreement or any application  thereof is invalid,  illegal,  or unenforceable in
any  respect  in any  instance  shall not  affect  the  validity,  legality,  or
enforceability  of  such  provision  in any  other  instance,  or the  validity,
legality, or enforceability of any other provision of this Agreement.

        19.4.  Amendments; Course of Dealing.
               (a)      This Agreement and the other Loan Documents  incorporate
all  discussions and  negotiations  between the Borrowers and the Agent and each
Lender, either express or implied, concerning the matters included herein and in
such other instruments, any custom, usage, or course of dealings to the contrary
notwithstanding. No such discussions,  negotiations, custom, usage, or course of
dealings shall limit,  modify,  or otherwise affect the provisions  thereof.  No
failure  by the Agent or any  Lender  to give  notice  to the  Borrowers  of the
Borrowers'  having  failed to observe and comply  with any  warranty or covenant
included in any Loan  Document  shall  constitute  a waiver of such  warranty or
covenant or the  amendment of the subject Loan  Document.  No change made by the
Agent in the manner by which Availability is determined shall obligate the Agent
to continue to determine Availability in that manner.

                                     - 129 -
<PAGE>

               (b)        The  Borrowers  may  undertake  any  action  otherwise
prohibited  hereby,  and may omit to take any action otherwise  required hereby,
upon and with the  express  prior  written  consent  of the Agent.  No  consent,
modification,  amendment,  or waiver of any provision of any Loan Document shall
be  effective  unless  executed  in  writing  by or on behalf of the party to be
charged with such modification,  amendment,  or waiver (and if such party is the
Agent, then by a duly authorized officer thereof). Any modification,  amendment,
or waiver  provided by the Agent shall be in reliance  upon all  representations
and  warranties  theretofore  made to the Agent by or on behalf of the Borrowers
(and any guarantor, endorser, or surety of the Liabilities) and consequently may
be rescinded in the event that any of such representations or warranties was not
true and complete in all material respects when given.
               (c)        The  following  provisions  of this  Agreement  may be
amended  without  the consent of the Lead  Borrower  or any  Borrower (a copy of
which amendments shall be provided by the Agent to the Lead Borrower):

<TABLE>
              Article                                                 Relates To
              -------                                                 ----------
<S>                                                  <C>
                13:                                  Revolving Credit Fundings and Distributions

 15(other  than 15.10 with  respect to  required     The Agent
 notices to and consents of Lead Borrower):

 17(other than 17.1(a)(ii), 17.2 and 17.3 with       Assignments and  Participations
 respect to required notices to and consents of
                Lead Borrower):

</TABLE>

        19.5.  Power of  Attorney.  In  connection  with all powers of  attorney
included in this Agreement, the Borrower hereby grants unto the Agent full power
(exercisable  after and during the  occurrence of an Event of Default) to do any
and all things  necessary or appropriate in connection with the exercise of such
powers as fully  and  effectually  as the  Borrowers  might or could do,  hereby
ratifying all that said attorney  shall do or cause to be done by virtue of this
Agreement. No power of attorney set forth in this Agreement shall be affected by
any  disability or  incapacity  suffered by the Borrowers and each shall survive
the same. All powers  conferred upon the Agent by this Agreement,  being coupled

                                    - 130 -
<PAGE>

with an interest,  shall be irrevocable  until this Agreement is terminated by a
written instrument executed by a duly authorized officer of the Agent.

        19.6. Application of Proceeds. The proceeds of any collection,  sale, or
disposition  of the  Collateral,  or of any other payments  received  hereunder,
shall be applied  towards the  Liabilities in such order and manner as the Agent
determines  in its sole  discretion  (subject,  as  between  the  Agent  and the
Lenders,  to Section 14.7). The Borrowers shall remain liable for any deficiency
remaining following such application.

        19.7.  Costs and Expenses of Agent and Of Lenders
               (a)        The  Borrowers  shall  pay  on  demand  all  Costs  of
Collection  and all  reasonable  expenses  of the Agent in  connection  with the
preparation,  execution,  and delivery of this  Agreement  and of any other Loan
Documents,  whether now existing or hereafter arising,  and all other reasonable
expenses  which may be  incurred  by the Agent in  preparing  or  amending  this
Agreement and all other agreements,  instruments, and documents related thereto,
or  otherwise  incurred  with  respect  to the  Liabilities,  and all  costs and
expenses of the Agent which relate to the credit facility contemplated hereby.
               (b)      The Borrowers shall pay on demand all costs and expenses
(including attorneys' reasonable fees) incurred, following the occurrence of any
Event of Default,  by each Lender in connection with the enforcement,  attempted
enforcement, or preservation of any rights and remedies under this, or any other
Loan  Document,  as well as any such costs and expenses in  connection  with any
"workout",  forbearance,  or restructuring  of the credit facility  contemplated
hereby.
               (c)      The  Borrowers  authorize the Agent to pay all such fees
and expenses and in the Agent's discretion, to add such fees and expenses to the
Loan Account.
               (d)      The  undertaking  on the part of the  Borrowers  in this
Section 19.7 shall survive  payment of the Liabilities  and/or any  termination,
release,  or discharge  executed by the Agent in favor of the  Borrowers,  other
than a termination,  release,  or discharge  which given because all Liabilities
had been paid in full.

                                    - 131 -
<PAGE>

        19.8.  Copies and  Facsimiles.  This  Agreement and all documents  which
relate thereto, which have been or may be hereinafter furnished the Agent or any
Lender may be  reproduced  by such  Lender or by the Agent by any  photographic,
microfilm,  xerographic,  digital imaging, or other process, and any document so
reproduced  may be  destroyed.  Any such  reproduction  shall be  admissible  in
evidence as the  original  itself in any judicial or  administrative  proceeding
(whether  or  not  the  original  is  in  existence  and  whether  or  not  such
reproduction  was made in the regular course of business).  Any facsimile  which
bears  proof of  transmission  shall be binding  on the party  which or on whose
behalf such  transmission  was initiated and likewise  shall be so admissible in
evidence as if the original of such  facsimile  had been  delivered to the party
which or on whose behalf such transmission was received.

        19.9.  New York Law.  Pursuant to Section 5-1401 of the New York General
Obligations  Law,  this  Agreement  and all  rights and  obligations  hereunder,
including matters of construction,  validity, and performance, shall be governed
by the laws of the State of New York.

        19.10. Consent to Jurisdiction.
               (a)       Pursuant  to  Section  5-1402  of the New York  General
Obligations Law, the Borrowers agree that any legal action, proceeding, case, or
controversy  against  any  Borrower  with  respect to any Loan  Document  may be
brought in the New York State courts and the United State District Court sitting
in  Manhattan,  as the  Agent  may  elect in the  Agent's  sole  discretion.  By
execution  and  delivery of this  Agreement,  each  Borrower,  for itself and in
respect  of  its  property,   accepts,   submits,  and  consents  generally  and
unconditionally, to the jurisdiction of the aforesaid courts.
               (b)      To the extent permitted by applicable law, each Borrower
WAIVES personal service of any and all process upon it, and irrevocably consents
to the  service of process out of any of the  aforementioned  courts in any such
action or proceeding by the mailing of copies thereof by certified mail, postage
prepaid,  to the Lead  Borrower  at the Lead  Borrower's  address for notices as
specified herein,  such service to become effective five (5) Business Days after
such mailing.

                                    - 132 -
<PAGE>

               (c)      Each Borrower  WAIVES any  objection  based on forum non
conveniens  and any  objection to venue of any action or  proceeding  instituted
under any of the Loan  Documents  and  consents to the granting of such legal or
equitable remedy as is deemed appropriate by the Court.
               (d)       Nothing  herein  shall affect the right of the Agent to
bring legal actions or proceedings in any other court of competent jurisdiction.
               (e)      Each Borrower  agrees that any action  commenced by that
Borrower asserting any claim or counterclaim arising under or in connection with
this  Agreement or any other Loan Document  shall be brought  solely in New York
City and that such Courts shall have exclusive  jurisdiction with respect to any
such action.

        19.11. Indemnification.  The Borrowers shall indemnify, defend, and hold
the Agent and each Lender and any  Participant  and any  employee,  officer,  or
agent of any of the foregoing  (each, an "INDEMNIFIED  PERSON")  harmless of and
from any claim  brought or  threatened  against  any  Indemnified  Person by any
Person other than any Borrower (as well as from  reasonable  attorneys' fees and
expenses  in  connection  therewith)  on  account  of  the  relationship  of the
Borrowers  with the Agent or any Lender  (each of claims  which may be defended,
compromised,  settled,  or pursued by the Indemnified Person with counsel of the
Lender's  selection,  but at the expense of the Borrowers with the understanding
that in the absence of an Event of Default any compromise or settlement shall be
with the  Lead  Borrower's  consent)  other  than any  claim as to which a final
determination is made in a judicial proceeding (in which the Agent and any other
Indemnified  Person has had an  opportunity  to be heard),  which  determination
includes a specific finding that the Indemnified Person seeking  indemnification
had acted in a grossly negligent manner or in actual bad faith or has engaged in
willful  misconduct.   This   indemnification   shall  survive  payment  of  the
Liabilities and/or any termination,  release, or discharge executed by the Agent
in favor of the Borrowers, other than a termination, release, or discharge which
makes specific reference to this Section 19.11.

                                    - 133 -
<PAGE>

        19.12. Rules of Construction.  The following rules of construction shall
be  applied  in  the  interpretation,  construction,  and  enforcement  of  this
Agreement and of the other Loan Documents:
               (a)      Words in the  singular  include  the plural and words in
the plural include the singular.
               (b)      Each representation, warranty, covenant, and undertaking
of the Borrowers in any Loan  Document is the joint and several  representation,
warranty,  covenant,  and  undertaking  of  all  of the  Borrowers  unless  such
representation,  warranty,  covenant or undertaking is made by the Lead Borrower
alone or by any other specific Borrowers.
               (c)      Titles, headings (indicated by being underlined or shown
in SMALL  CAPITALS)  and any Table of  Contents  are solely for  convenience  of
reference;  do not constitute a part of the instrument in which included; and do
not affect such instrument's meaning, construction, or effect.
               (d)      The words  "includes" and  "including" are not limiting.
               (e)      Text  which  follows  the   words  "including,   without
limitation" (or similar words) is illustrative and not limitational.
               (f)      Except where the context otherwise requires or where the
relevant  subsections  are  joined  by  "or",  compliance  with any  Section  or
provision of any Loan Document which constitutes a warranty or covenant requires
compliance with all  subsections  (if any) of that Section or provision.  Except
where the context otherwise  requires,  compliance with any warranty or covenant
of any Loan Document which includes  subsections which are joined by "or" may be
accomplished by compliance with any of such subsections.
               (g)      Text which is shown in italics,  shown in BOLD, shown IN
ALL CAPITAL LETTERS, or in any combination of the foregoing,  shall be deemed to
be conspicuous.
               (h)      The words "may not" are  prohibitive and not permissive.
               (i)      Any  reference  to a  Person's  "knowledge" (or words of
similar import)  are to  such  Person's  knowledge  assuming  that  such  Person
has  undertaken  reasonable  and  diligent  investigation  with  respect  to the
subject of such "knowledge" (whether or not such investigation has actually been
undertaken).

                                    - 134 -
<PAGE>

               (j)      Terms  which are  defined  in one  section  of any Loan
Document are used with such  definition  throughout  the  instrument in which so
defined.
               (k)      The symbol "$" refers to United States Dollars.
               (l)      Unless  limited by reference to a particular  Section or
provision,  any  reference to "herein",  "hereof",  or "within" is to the entire
Loan Document in which such reference is made.
               (m)      References  to "this  Agreement"  or to any other  Loan
Document are to such  instrument as amended to the date on which  application of
such reference is being made.
               (n)      Except  as   otherwise   specifically    provided,   all
references to time are to Boston time.
               (o)      In the  determination  of any  notice,  grace,  or other
period of time prescribed or allowed hereunder:
                      (i)      Unless otherwise provided (I) the day of the act,
        event, or default from which the designated period of time begins to run
        shall not be included  and the last day of the period so computed  shall
        be included  unless such last day is not a Business  Day, in which event
        the last day of the relevant  period shall be the then next Business Day
        and (II) the  period so  computed  shall end at 5:00 PM on the  relevant
        Business Day.
                      (ii)     The word "from" means "from and including".
                     (iii)     The  words  "to"  and  "until" each mean "to, but
                               excluding".
                     (iv)      The   work "through"  means "to  and  including".
               (p)      In the event of any inconsistency between the provisions
of this Agreement and any other Loan Document,  the provisions of this Agreement
shall govern and control.

        19.13. Intent.  It is intended that:
               (a)    This Agreement take effect as a sealed instrument.
               (b)    The   scope  of  the  security  interests created  by this
Agreement be broadly construed in favor of the Agent.
               (c)    The security  interests  created by  this Agreement secure
all  Liabilities  under the Loan  Documents,  whether now  existing or hereafter
arising.

                                    - 135 -
<PAGE>

               (d)      Unless otherwise explicitly provided herein, the Agent's
consent to any action of the Borrowers  which is prohibited  unless such consent
is given may be given or refused by the Agent in its sole discretion and without
reference to Section 2.16 hereof.

        19.14. Right of Set-Off.  Any and all deposits or other sums at any time
credited  by or due  to  any  Borrower  from  the  Agents,  any  Lender,  or any
participant (a "Participant") in the credit facility  contemplated hereby or any
from any Affiliate of the Agent or, any Lender, or any Participant and any cash,
securities,  instruments or other property of the Borrowers in the possession of
the Agent,  any  Lender,  any  Participant  or any such  Affiliate,  whether for
safekeeping or otherwise  (regardless of the reason such Person had received the
same) shall at all times constitute security for all Liabilities and for any and
all obligations of the Borrowers to the Agent and each Lender or any Participant
or any such Affiliate and may be applied or set off against the  Liabilities and
against such  obligations,  following the  occurrence of an Event of Default and
then only with the consent of, or upon the  direction  of, the Agent and whether
or not other  Collateral  is then  available  to the Agent,  any Lender,  or any
Participant or any such Affiliate.

        19.15.  Maximum  Interest Rate.  Regardless of any provision of any Loan
Document,  none of the Agent or any Lender  shall be entitled  to contract  for,
charge, receive,  collect, or apply as interest on any Liability,  any amount in
excess of the maximum rate imposed by applicable  law. Any payment which is made
which,  if treated as interest on a Liability  would  result in such  interest's
exceeding  such  maximum rate shall be held,  to the extent of such  excess,  as
additional collateral for the Liabilities as if such excess were "Collateral."

        19.16. Waivers.
               (a)        The  Borrowers  (and all  guarantors,  endorsers,  and
sureties  of the  Liabilities)  make each of the  waivers  included  in  Section
19.16(b), below, knowingly,  voluntarily, and intentionally, and understand that
the  Agent  and  each  Lender,  in  entering  into  the  financial  arrangements

                                    - 136 -
<PAGE>

contemplated hereby and in providing loans and other financial accommodations to
or for the account of the  Borrowers as provided  herein,  whether not or in the
future, are relying on such waivers.
               (b)      EACH BORROWER,  AND EACH SUCH GUARANTOR,  ENDORSER,  AND
SURETY RESPECTIVELY WAIVES THE FOLLOWING:
                       (i) Except  as  otherwise  specifically  required hereby,
        notice of  non-payment,  demand,  presentment,  protest and all forms of
        demand  and  notice,  both  with  respect  to the  Liabilities  and  the
        Collateral.
                      (ii) Except as otherwise  specifically  required hereby or
        by  applicable  law,  the right to notice  and/or  hearing  prior to the
        Agent's exercising of the Agent's rights upon default.
                     (iii) THE   RIGHT  TO  A JURY IN ANY  TRIAL  OF ANY CASE OR
        CONTROVERSY  IN WHICH  THE  AGENT OR ANY  LENDER  IS OR  BECOMES A PARTY
        (WHETHER SUCH CASE OR  CONTROVERSY  IS INITIATED BY OR AGAINST THE AGENT
        OR ANY  LENDER OR IN WHICH THE AGENT OR ANY  LENDER IS JOINED AS A PARTY
        LITIGANT),  WHICH CASE OR CONTROVERSY ARISES OUT OF OR IS IN RESPECT OF,
        ANY  RELATIONSHIP  AMONGST OR BETWEEN THE  BORROWERS OR ANY OTHER PERSON
        AND THE AGENT OR ANY  LENDER  (AND THE AGENT  AND EACH  LENDER  LIKEWISE
        WAIVE THE RIGHT TO A JURY IN ANY TRIAL OF ANY SUCH CASE OR CONTROVERSY).
                      (iv) Any defense,  counterclaim,  set-off,  recoupment, or
        other basis on which the amount of any Liability, as stated on the books
        and records of the Agent or any  Lender,  could be reduced or claimed to
        be paid otherwise than in accordance with the tenor of and written terms
        of such Liability.
                      (v)       Any claim to consequential, special, or punitive
damages.

                                    - 137 -
<PAGE>

                                           LECHTERS, INC.
                                                ("LEAD BORROWER")


                                           By:  /s/ James J. Sheppard
                                           Print Name:  James J. Sheppard
                                           Title: Senior Vice President
                                                  and Chief Financial Officer


                                           ALL BORROWERS IN EXHIBIT A HERETO
                                            (other than the Lead Borrower)


                                           By:  /s/ James J. Sheppard
                                           Name:  James J. Sheppard
                                           Title: Senior Vice President
                                                  and Chief Financial Officer
                                                  of each such Borrower


                                           BANKBOSTON RETAIL FINANCE INC.
                                                             ("AGENT")


                                           By:  /s/ Betsy Ratto
                                           Print Name:  Betsy Ratto
                                           Title:  Vice President

                                    - 138 -
<PAGE>


                                           PNC BANK, NATIONAL ASSOCIATION,
                                                           (a "LENDER")


                                           By:  /s/ David L. Raphaels
                                           Title: Vice President

                                    - 139 -
<PAGE>



                                           CONGRESS FINANCIAL CORPORATION,
                                                           (a "LENDER")


                                           By:  /s/ Thomas McGregor
                                           Title:  Vice President

                                    - 140 -
<PAGE>


                                           HELLER FINANCIAL, INC.,
                                                    (a "LENDER")


                                           By:  /s/ Richard J. Holston
                                           Title:  Assistant Vice President

                                    - 141 -
<PAGE>

<TABLE>
                                   SCHEDULE B


                        SCHEDULE OF LENDERS' COMMITMENTS

             LENDER                      DOLLAR COMMITMENT             COMMITMENT PERCENTAGE
---------------------------------- ------------------------------- ------------------------------

<S>                                        <C>                                <C>
BankBoston Retail Finance Inc.             $45,000,000.00                     37.5%
---------------------------------- ------------------------------- ------------------------------
Heller Financial, Inc.                     $27,500,000.00                     22.92%
---------------------------------- ------------------------------- ------------------------------
Congress Financial Corporation             $27,500,000.00                     22.92%
---------------------------------- ------------------------------- ------------------------------
PNC Bank, National Association             $20,000,000.00                     16.67%
---------------------------------- ------------------------------- ------------------------------
---------------------------------- ------------------------------- ------------------------------
TOTAL COMMITMENTS                           $120,000,000                       100%
---------------------------------- ------------------------------- ------------------------------

                                    - 142 -

</TABLE>