---------------------------------------------------------------
                              AMENDED AND RESTATED

                           LOAN AND SECURITY AGREEMENT
---------------------------------------------------------------


                            FLEET RETAIL FINANCE INC.

                                      AGENT

                                       AND

                         FLEET ROBERTSON STEPHENS, INC.,

                                SYNDICATION AGENT

                   FOR THE TRANCHE A LENDERS REFERENCED HEREIN

                                       AND

                          BACK BAY CAPITAL FUNDING, LLC

                                TRANCHE B LENDER

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



                                 LECHTERS, INC.,

                                  LEAD BORROWER

                       FOR THE BORROWERS REFERENCED HEREIN

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

                                NOVEMBER 14, 2000






                                TABLE OF CONTENTS


                                                                            Page

ARTICLE I - DEFINITIONS.......................................................1
ARTICLE II - THE REVOLVING CREDIT AND TRANCHE B LOAN FACILITY................42
  2.1   Establishment of Revolving Credit and Tranche B Loan Facility........42
        -------------------------------------------------------------
  2.2   Advances in Excess of Borrowing Base.................................46
        ------------------------------------
  2.3   Risks of Value of Collateral.........................................47
        ----------------------------
  2.4   Loan Requests........................................................47
        -------------
  2.5   Making of Loans......................................................50
        ---------------
  2.6   SwingLine Loans......................................................51
        ---------------
  2.7   The Loan Account.....................................................52
        ----------------
  2.8   Notes................................................................53
        -----
  2.9   Payment of Loans.....................................................54
        ----------------
  2.10  Interest Rates.......................................................56
        --------------
  2.11  Agent's Fee..........................................................59
        -----------
  2.12  Amendment Fee; Tranche B Commitment Feet.............................59
        ----------------------------------------
  2.13  Line (Unused) Fee; Annual Facility Fee...............................59
        --------------------------------------
  2.14  Early Termination Fees...............................................60
        ----------------------
  2.15  Concerning Fees......................................................60
        ---------------
  2.16  Agent's and Lenders' Discretion......................................61
        -------------------------------
  2.17  Procedures For Issuance of L/C's.....................................62
        --------------------------------
  2.18  Fees For L/C's.......................................................64
        --------------
  2.19  Concerning L/C's.....................................................65
        ----------------
  2.20  Changed Circumstances................................................68
        ---------------------
  2.21  Increased Costs/Taxes................................................70
        ---------------------
  2.22  Lenders' Commitments.................................................73
        --------------------
  2.23  Concerning Joint and Several Liability of the Borrowers..............75
        -------------------------------------------------------
  2.24  Lechters, Inc. as Lead Borrower......................................78
        -------------------------------
ARTICLE III - CONDITIONS PRECEDENT...........................................79
  3.1.  Corporate Due Diligence..............................................80
        -----------------------
  3.2.  Opinion..............................................................80
        -------
  3.3.  Additional Documents.................................................80
        --------------------
  3.4.  Officers' Certificates...............................................81
        ----------------------
  3.5.  Representations and Warranties.......................................81
        ------------------------------
  3.6.  Minimum Excess Availability..........................................81
        ---------------------------
  3.7.  All Fees and Expenses Paid...........................................82
        --------------------------
  3.8.  No Event of Default..................................................82
        -------------------
  3.9.  No Adverse Change....................................................82
        -----------------
  3.10.  Delivery of Notices.................................................82
         -------------------
ARTICLE IV - GENERAL REPRESENTATIONS, COVENANTS AND WARRANTIES...............82
  4.1.  Payment and Performance of Liabilities...............................83
        --------------------------------------
  4.2.  Due Organization - Corporate Authorization - No Conflicts............83
        ---------------------------------------------------------
  4.3.  Trade Names..........................................................85
        -----------
  4.4.  Infrastructure.......................................................85
        --------------
  4.5   Intentionally Omitted................................................86
  4.6.  Locations............................................................86
        ---------
  4.7.  Title to Assets......................................................89
        ---------------
  4.8   Indebtedness.........................................................89
        ------------
  4.9   Repayment of 5.00% Notes.............................................91
        ------------------------
  4.10. Insurance Policies...................................................91
        ------------------
  4.11. Licenses.............................................................93
        --------
  4.12. Leases...............................................................93
       ` ------
                                        i



  4.13.  Requirements of Law.................................................93
         -------------------
  4.14.  Maintain Collateral.................................................94
         -------------------
  4.15.  Pay Taxes...........................................................95
         ---------
  4.16.  No Margin Stock.....................................................96
         ---------------
  4.17.  ERISA...............................................................97
         -----
  4.18.  Hazardous Materials.................................................98
         -------------------
  4.19.  Litigation..........................................................99
         ----------
  4.20.  Dividends, Investments, Repurchases and Debt Retirement.............99
         -------------------------------------------------------
  4.21.  Loans..............................................................103
         -----
  4.22.  Protection of Assets...............................................103
         --------------------
  4.23.  Line of Business...................................................104
         ----------------
  4.24.  Affiliate Transactions.............................................104
         ----------------------
  4.25.  Additional Assurances..............................................104
         ---------------------
  4.26.  Adequacy of Disclosure.............................................105
         ----------------------
  4.27  No Restrictions on Liabilities......................................107
        ------------------------------
  4.28  Other Covenants.....................................................107
        ---------------
ARTICLE V - FINANCIAL REPORTING AND PERFORMANCE COVENANTS...................107
  5.1.  Maintain Records....................................................107
        ----------------
  5.2.  Access to Records...................................................108
        -----------------
  5.3.  Immediate Notice to Agent...........................................109
        -------------------------
  5.4.  Borrowing Base Certificate..........................................111
        --------------------------
  5.5.  Monthly Collateral Reports..........................................112
        --------------------------
  5.7   Quarterly Financial Reports.........................................112
        ---------------------------
  5.8   Annual Reports......................................................112
        --------------
  5.9   Officers' Certificates..............................................112
        ----------------------
  5.10  Inventories, Appraisals, and Audits.................................113
        -----------------------------------
  5.11.  Additional Financial Information...................................115
         --------------------------------
  5.12.  Financial Performance Covenants....................................116
         -------------------------------
ARTICLE VI - USE AND COLLECTION OF COLLATERAL...............................117
  6.1.  Use of Inventory Collateral.........................................117
        ---------------------------
  6.2.  Inventory Quality...................................................118
        -----------------
  6.3.  Adjustments and Allowances..........................................118
        --------------------------
  6.4.  Validity of Accounts................................................118
        --------------------
  6.5.  Notification to Account Debtors.....................................119
        -------------------------------
ARTICLE VII - CASH MANAGEMENT; PAYMENT OF LIABILITIES.......................119
  7.1.  Depository Accounts.................................................119
        -------------------
  7.2.  Credit Card Receipts................................................120
        --------------------
  7.3.  The Concentration, Blocked, and Operating Accounts..................120
        --------------------------------------------------
  7.4.  Proceeds and Collection of Accounts.................................121
        -----------------------------------
  7.5.  Payment of Liabilities..............................................123
        ----------------------
  7.6   The Operating Account...............................................124
        ---------------------
ARTICLE VIII - GRANT OF SECURITY INTEREST...................................124
  8.1.  Grant of Security Interest..........................................124
        --------------------------
  8.2.  Extent and Duration of Security Interest............................125
        ----------------------------------------
  8.3   Delivery of Instruments, etc........................................126
        -----------------------------
  8.4   Concerning Revised Article 9 of the Uniform Commercial Code.........127
        -----------------------------------------------------------
ARTICLE IX - AGENT AS BORROWERS' ATTORNEY-IN-FACT...........................129
  9.1.  Appointment as Attorney-In-Fact.....................................130
        -------------------------------
  9.2.  No Obligation to Act................................................131
        --------------------
ARTICLE X - EVENTS OF DEFAULT...............................................131
  10.1.  Failure to Pay Revolving Credit or Tranche B Loan..................132
         -------------------------------------------------
  10.2.  Failure To Make Other Payments.....................................132
         ------------------------------
  10.3.  Failure to Perform Covenant or Liability (No Grace Period).........132
         ----------------------------------------------------------
  10.4.  Failure to Perform Covenant or Liability (Grace Period)............133
         -------------------------------------------------------
  10.5.  Misrepresentation..................................................133
         -----------------
  10.6.  Acceleration of Other Debt; Breach of Lease........................133
         -------------------------------------------
                                       ii


  10.7.  Default Under Other Agreements.....................................134
         ------------------------------
  10.9.  Judgment; Restraint of Business....................................134
         -------------------------------
  10.10. Business Failure...................................................135
         ----------------
  10.11. Bankruptcy.........................................................135
         ----------
  10.13  Foreign Proceeding.................................................136
         ------------------
  10.14. Challenge to Loan Documents........................................136
         ---------------------------
  10.15. Change in Control..................................................137
         -----------------
ARTICLE XI - RIGHTS AND REMEDIES UPON DEFAULT...............................137
  11.1.  Rights of Enforcement..............................................137
         ---------------------
  11.2.  Sale of Collateral.................................................138
         ------------------
  11.3.  Occupation of Business Location....................................139
         -------------------------------
  11.4.  Grant of Nonexclusive License......................................140
         -----------------------------
  11.5.  Assembly of Collateral.............................................140
         ----------------------
  11.6.  Rights and Remedies................................................140
         -------------------
ARTICLE XII - NOTICES.......................................................141
  12.1  Notice Addresses....................................................141
        ----------------
  12.2.  Notice Given.......................................................142
         ------------
ARTICLE XIII - REVOLVING CREDIT FUNDINGS AND DISTRIBUTIONS..................143
  13.1.  Revolving Credit Funding Procedures................................143
         -----------------------------------
  13.2  SwingLine Loans.....................................................143
        ---------------
  13.3  Agent's Covering of Fundings........................................144
        ----------------------------
  13.4  Ordinary Course Distributions: Revolving Credit.....................147
        -----------------------------------------------
ARTICLE XIV- ACCELERATION AND LIQUIDATION...................................149
  14.1  Acceleration Notices................................................149
        --------------------
  14.2  Acceleration Notice by the Tranche B Lender.........................149
        -------------------------------------------
  14.3  Mandatory Acceleration Right of Tranche B Lender....................150
        ------------------------------------------------
  14.4  Acceleration........................................................151
        ------------
  14.5  Initiation of Liquidation...........................................151
        -------------------------
  14.6  Actions At and Following Initiation of Liquidation..................151
        --------------------------------------------------
  14.7  Agent's Conduct of Liquidation......................................152
        ------------------------------
  14.8  Distribution of Liquidation Proceeds................................153
        ------------------------------------
  14.9  Relative Priorities To Proceeds of Liquidation......................153
        ----------------------------------------------
ARTICLE XV - THE AGENT......................................................154
  15.1  Appointment of Agent................................................154
        --------------------
  15.2  Responsibilities of Agent...........................................155
        -------------------------
  15.3  Concerning Distributions By the Agent...............................156
        -------------------------------------
  15.4  Dispute Resolution..................................................158
        ------------------
  15.5  Distributions of Notices and of Documents...........................158
        -----------------------------------------
  15.6  Confidential Information............................................158
        ------------------------
  15.7  Reliance by Agent...................................................159
        -----------------
  15.8  Non-Reliance on Agent and Other Lenders.............................159
        ---------------------------------------
  15.9  Indemnification.....................................................161
        ---------------
  15.10 Resignation of Agent................................................161
        --------------------
ARTICLE XVI - ACTION BY AGENT; CONSENTS; AMENDMENTS; WAIVERS................162
  16.1  Administration of Credit Facilities.................................162
        -----------------------------------
  16.2  Actions Requiring Consent or Direction of Majority Lenders..........164
        ----------------------------------------------------------
  16.3  Actions Requiring Consent or Direction of SuperMajority Lenders.....164
        ---------------------------------------------------------------
  16.4  Actions Requiring or Directed By Unanimous Consent..................165
        --------------------------------------------------
  16.5  Actions Requiring SwingLine Lender Consent..........................167
        ------------------------------------------
  16.6  Tranche B Lender Consent............................................167
        ------------------------
  16.7  Actions Requiring Agent's Consent...................................168
        ---------------------------------
  16.8  Miscellaneous Actions...............................................168
        ---------------------
  16.9  Nonconsenting Tranche A Lenders.....................................169
        -------------------------------
ARTICLE XVII ASSIGNMENTS AND PARTICIPATIONS.................................171
  17.1  Assignments and Assumptions by Lenders..............................171
        --------------------------------------
  17.2  Participations......................................................175
        --------------
                                       iii


  17.3  Pledges To Federal Reserve Banks....................................175
        --------------------------------
ARTICLE XVIII - TERM........................................................175
  18.1  Termination of Revolving Credit.....................................175
        -------------------------------
  18.2  Effect of Termination...............................................175
        ---------------------
ARTICLE XIX - GENERAL.......................................................176
  19.1.  Protection of Collateral...........................................176
         ------------------------
  19.2.  Successors and Assigns.............................................176
         ----------------------
  19.3.  Severability.......................................................177
         ------------
  19.4.  Amendments; Course of Dealing......................................177
         -----------------------------
  19.5.  Power of Attorney..................................................178
         -----------------
  19.7.  Costs and Expenses of Agent and Of Lenders.........................179
         ------------------------------------------
  19.8.  Copies and Facsimiles..............................................180
         ---------------------
  19.9.  New York Law.......................................................180
         ------------
  19.11. Indemnification....................................................182
         ---------------
  19.12. Rules of Construction..............................................182
         ---------------------
  19.13. Intent.............................................................185
         ------
  19.14. Right of Set-Off...................................................185
         ----------------
  19.15. Maximum Interest Rate..............................................185
         ---------------------
  19.16. Waivers............................................................186
         -------
  19.17  Transitional Arrangements..........................................187
         -------------------------



LIST OF EXHIBITS


EXHIBIT A _________  List of Borrowers  EXHIBIT 1 _________  Local  Disbursement
Account EXHIBIT 2.4(b) ____ Form of Revolving Credit Loan Request EXHIBIT 2.4(g)
____ Form of Tranche B Loan Request  EXHIBIT  2.6(c) ____ Form of SwingLine Note
EXHIBIT 2.8 _______  Form of Revolving  Credit Note EXHIBIT  2.8(b) ____ Form of
Tranche B Note EXHIBIT 3.3(1) ____ Pledge Agreement EXHIBIT 4.2 _______ State of
Organization  EXHIBIT 4.3 _______ Trade Names / Related  Entities EXHIBIT 4.6(a)
____ Executive  Office and Other  Locations  EXHIBIT  4.6(c)(i) Form of Landlord
Waiver
EXHIBIT 4.6(c) ____ List of States where Landlord  Waivers are Required  EXHIBIT
4.7 _______ Permitted Encumbrances EXHIBIT 4.8 _______ Indebtedness EXHIBIT 4.10
______ Schedule of all insurance policies owned by the Borrowers
                  where Landlord Waivers are Required
EXHIBIT 4.12      Leases
EXHIBIT 4.15      Taxes
EXHIBIT 4.19      Litigation
EXHIBIT 4.25      Additional Assurances
EXHIBIT 5.4       Borrowing Base Certificate
EXHIBIT 5.5       Monthly Collateral Reports
EXHIBIT 5.11(c)   Business Plan
EXHIBIT 7.1       Depository Accounts


                                       iv


EXHIBIT 7.2       Credit Card Receipts
EXHIBIT 7.4(b)(i) Balances for each DDA
EXHIBIT 17.1      Tranche A Assignment and Acceptance
EXHIBIT 17.2      Tranche B Assignment and Acceptance


                                        v




AMENDED AND RESTATED                                   FLEET RETAIL FINANCE INC.
LOAN AND SECURITY AGREEMENT                            AGENT


                                                               November 14, 2000

        THIS AGREEMENT is made among

               FLEET 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 (i) the "Tranche A Lenders",  on a Tranche A
Pro Rata basis, based upon each Tranche A 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  "Tranche A Lenders" in accordance with the provisions of Section 2.22(c)
below and (ii) the Tranche B Lender and those Persons (if any) who in the future
become a  "Tranche  B Lender " in  accordance  with the  provisions  of  Section
2.22(e) below;

               FLEET 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 Tranche A Lenders  identified on the signature pages
of this Agreement;

               BACK BAY  CAPITAL  FUNDING,  LLC,  a Delaware  limited  liability
company,  with  offices at 40 Broad  Street,  Boston,  Massachusetts  02109 (the
"Tranche B Lender");

               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:
       "5.00% NOTES": The Parent's 5.00% Convertible Subordinated Debentures due


                                        1
<PAGE>


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 as follows:
                      (a)From the SuperMajority  Lenders, as provided in Section
                         14.1.
                      (b)From the Tranche B Lender, as provided in Section 14.2.
                      The Agent shall provide copies of any Acceleration  notice
                      to each Lender.
        "ACCEPTABLE CASH COLLATERAL":  Cash or any  Permitted Investment held by
               Fleet National Bank 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  type,  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

                                        2
<PAGE>

               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); 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 of the  issuance  of such L/C,
               provided that
                      (a)      Such  Inventory  is  of  such  types,  character,
               qualities and quantities as the Agent in its discretion from time

                                        3
<PAGE>

               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).
        "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

                                        4
<PAGE>

               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 FEE LETTER":  Defined in Section 2.11.
        "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 Tranche A Lender that was  obligated  to provide such amount to
               the Agent in accordance with this Agreement.
        "AGENT'S FEE":  Defined in Section 2.11.
        "AGENT'S RIGHTS AND REMEDIES":  Defined in Section 11.6.
        "ASSIGNING LENDER":  Defined in Section 17.l(a).
        "ASSIGNMENT AND ACCEPTANCE":  Defined in Section 17.1(b).
        "AVAILABILITY":  Defined in Section 2.l(c)(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

                                        5
<PAGE>

                      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.
               (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)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.
         "BASE":  The Prime Rate  announced  from time to time by Fleet National
               Bank (or any successor in interest to Fleet  National  Bank).  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,

                                        6
<PAGE>

               designates as the  functional  equivalent to said Prime 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.
        "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.l(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.
        "BORROWER DEFAULT":  Any  Borrowing  Base  Default,  Tranche  B  Payment
               Default or General Default.
        "BORROWING BASE":  Defined in Section 2.1(b)(ii).

                                        7
<PAGE>

        "BORROWING BASE  DEFAULT":  Any time that the unpaid balance of the Loan
               Account (excluding the outstanding amount of the Tranche B Loans)
               plus  the  then  stated  amount  of all  L/Cs  shall  exceed  the
               Borrowing  Base for two (2)  consecutive  days and the  Borrowers
               shall have  failed to have cured  such  condition  within one day
               after notice  thereof from the Agent to the Lead  Borrower  which
               notice  may be  given by  Agent  on the  first  day that the Loan
               Account (excluding the outstanding amount of the Tranche B Loans)
               plus the then stated amount of L/Cs exceeds the Borrowing Base.
        "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.
        "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.

                                        8
<PAGE>

        "CASH MANAGEMENT CONDITION":  The first to occur 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 $10
               Million  for a period of three (3) or more  consecutive  Business
               Days.
                      (c)      September 1, 2001.
        "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 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

                                        9
<PAGE>

               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.
        "CLOSING DATE":  Defined in Article III.
        "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 of a particular tranche of
               Loans (either Tranche A Loans or Tranche B Loans, as the case may
               be),   such  Lender's   "DOLLAR   Commitment"   and   "COMMITMENT
               PERCENTAGE"  of such  tranche of Loans 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 (a) as to the Tranche A Lenders, collectively,
               the "Tranche A Commitment"  shall be the aggregate  amount of the
               Tranche  A Dollar  Commitments  of all  Tranche  A  Lenders,  the
               maximum amount of which shall not exceed  $120,000,000.00 and (b)
               as to the Tranche B Lender,  the "Tranche B Commitment"  shall be
               the Tranche B Dollar Commitment of $10,000,000.
        "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

                                       10
<PAGE>

               receipt  by a  Lender  of  written  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

                                       11
<PAGE>

               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, 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  Tranche A
               Lenders  shall  be  limited  to the  reasonable  fees of a single
               counsel for all  Tranche A Lenders  but that Costs of  Collection
               also  shall   include   the   reasonable   fees  and   reasonable
               out-of-pocket  expenses  of  separate  counsel  for the Tranche B
               Lender.
        "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

                                       12
<PAGE>

               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 TRANCHE A LENDER":  Defined in Section 13.3(c).
        "DELINQUENT  TRANCHE B LENDER" A Tranche B Lender that fails to fund the
               Tranche B Loan within one (1)  Business Day notice from the Agent
               that all  conditions  precedent  to the making of such  Tranche B
               Loan have been satisfied.
        "DEPOSIT ACCOUNT":  Has the meaning given that term in the UCC.
        "DOCUMENTS":  Has the meaning given that term in the UCC.
        "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.
        "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 TRANCHE A 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 Tranche A Lender.
        "ELIGIBLE  TRANCHE  B  ASSIGNEE":  As long as no  Event of  Default  has
               occurred  and is  continuing,  any Person that is consented to by
               Lead Borrower as provided in Section  17.1(h) or any Affiliate of
               any Tranche B Lender and, if an Event of Default has occurred and
               is continuing, any Person.

                                       13
<PAGE>

        "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.
                      (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.

                                       14
<PAGE>

                      (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 400l 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.
        "EURODOLLAR BUSINESS DAY": Any day that is both a Business Day and a day
               on which the  principal  market  in  Eurodollars  in which  Fleet
               National Bank 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 Fleet

                                       15
<PAGE>

               National Bank, by first-class  banks in the Eurodollar  market in
               which  Fleet  National  Bank  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 Tranche A 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  Tranche 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:
                                 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

                                       16
<PAGE>

               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.
        "FRF":  Fleet Retail Finance Inc. and any successor thereof.
        "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 DEFAULT":  The occurrence of an Event of Default, other than an
               Event of Default which  constitutes a Borrowing Base Default or a
               Tranche B Payment Default.
        "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;  warranty

                                       17
<PAGE>

               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;   letter  of  credit  rights,
               including,  without limitation the proceeds of letters of credit,
               whether or not written;  and all other intangible property of the
               Borrower in the nature of intellectual property; proposals; cost

                                       18
<PAGE>

               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.
        "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

                                       19
<PAGE>

               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.
                             (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.
        "INOPERATIVE  SUBSIDIARY":  A  Subsidiary  that  at  all  times  has  no
               liabilities  of any kind  (other  than  fees or  franchise  taxes
               relating   to  any  such   Subsidiary's   corporate   or   entity
               subsistance)  and no  assets  other  than the right to use in its
               corporate  name a trademark  used by the  Borrowers in connection
               with the conduct of their business.
        "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.

                                       20
<PAGE>

                      (b) ______ Each  Eurodollar  Loan:  (i) having an Interest
               Period of one (1),  two (2) or three (3) months,  the last day of
               the Interest Period relating  thereto,  the Termination  Date and
               the End Date;  (ii) having an Interest  Period of six (6) 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.
                      (c) ______ The Tranche B Loan:the  first  Business  Day of
               each month, 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 (1), two (2), three (3) or six (6)
               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 the last  Eurodollar
                             Business Day of the month during which the Interest
                             Period ends.
                                    (ii)      Subject to  Subsections  (iii) and
                             (iv) below,  any Interest  Period  applicable  to a

                                       21
<PAGE>

                             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.
                                    (iii) _____ 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.
                                    (v)       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:

<TABLE>

                       ---------------------------------- -----------------------
                       Period                             Percentage

                       ---------------------------------- -----------------------
                       ---------------------------------- -----------------------
                       <S>                                <C>

                       January 1 - August 31                       72%
                       ---------------------------------- -----------------------
                       ---------------------------------- -----------------------
                       September 1 - December 31                   78%
                       ---------------------------------- -----------------------
</TABLE>

                                       22
<PAGE>

        "INVENTORY APPRAISAL CAP":  85% of the Net Liquidation Value.
        "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.

                                       23
<PAGE>

                      (x)    Damage.
        "INVESTMENT PROPERTY":  Has the meaning given that term in the UCC.
        "ISSUER":  The issuer of any L/C.
        "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":  The  Tranche A Lenders and the Tranche B Lender collectively
               and individually.
        "LIABILITIES"  (in the  singular,  "Liability"):  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.

                                       24
<PAGE>

                      (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 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.

                                       25
<PAGE>

                      (g)      Each of the foregoing as if each reference to the
               "Agent" 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.
        "LOAN":  Any  Revolving  Credit  Loan,  Swingline Loan or Tranche B Loan
               made hereunder.
        "LOAN ACCOUNT":  Defined in Section 2.7.
        "LOAN CEILING":  The   aggregate   amount   of   the  Tranche  A  Dollar
               Commitments and the Tranche B Dollar Commitment.
        "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,
               including,  without limitation,  any transaction which arises out
               of any cash management (including any ACH transfer arrangements),
               depository,   investment,   letter  of  credit,   interest   rate
               protection provided by the Agent or any Affiliate of the Agent in
               connection  with  the  arrangements  contemplated  hereby,  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.

                                       26
<PAGE>

        "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 Tranche A Lenders and
               Delinquent Tranche B Lender) holding 51% or more of the aggregate
               of the Dollar  Commitments of the Tranche A Lenders and Tranche B
               Lender (other than Dollar  Commitments held by Delinquent Tranche
               A Lenders  and  Delinquent  Tranche B Lender)  and, to the extent
               that the  Dollar  Commitments  of the  Lenders  are no  longer in
               effect,  based  upon  the  outstanding  Liabilities  held by such
               Lenders.
        "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

                                       27
<PAGE>

               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.
        "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

                                       28
<PAGE>

               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).
        "NOTES":  The  Revolving  Credit  Notes,  the  Tranche B  Note  and  the
               SwingLine Note.
        "OPERATING ACCOUNT":  Defined in Section 7.3(a)(iii).
        "OVERALL INVENTORY ADVANCE RATE":  The  following percentages during the
               periods indicated on the chart below:

<TABLE>

                      ---------------------------------- -----------------------
                       Period                            Percentage

                      ---------------------------------- -----------------------
                      ---------------------------------- -----------------------
                       <S>                               <C>

                       December 16 - March 31                      79%
                      ---------------------------------- -----------------------
                      ---------------------------------- -----------------------
                       April 1 - August 31                         82%
                      ---------------------------------- -----------------------
                      ---------------------------------- -----------------------
                       September 1 - December 15                   85%
                      ---------------------------------- -----------------------
</TABLE>

        "OVERALL INVENTORY APPRAISAL CAP":  90% of the Net Liquidation Value.
        "PARTICIPANT":  Defined in Section 19.14, hereof.
        "PERMISSIBLE OVERLOANS":  Revolving   Credit   Loans   hereunder   which
               aggregate  not more  than 5% of the  Tranche  A 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
               (0) and are not extant  for more than sixty (60) days  absent the
               consent of Super Majority Lenders pursuant to Section 16.3 hereof
               and of the  Tranche B Lender  pursuant  to Section  16.6  hereof;
               provided however, in no event shall the making of any Permissible
               Overloan cause the Tranche A Loan Ceiling to be exceeded.
        "PERMITTED ENCUMBRANCES":  The following:

                                       29
<PAGE>

                      (a)      Encumbrances in favor of the Agent.
                      (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 law where

                                       30
<PAGE>

               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 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 Fleet National
                      Bank 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-l/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.

                                       31
<PAGE>

                             (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' 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   Loans  and  its  interest  in  L/C  exposure  and  the
               denominator shall be the aggregate amount of all unpaid 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.

                                       32
<PAGE>

        "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.
        "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.

                                       33
<PAGE>

        "RESERVE PERCENTAGE":  The decimal equivalent of that rate applicable to
               a Tranche 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 Tranche A
               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  Borrowers  as the  Agent  shall  deem
               adequate for such purpose in its reasonable discretion.
        "REVOLVING CREDIT":  Defined in Section 2.1.
        "REVOLVING  CREDIT LOAN": A particular loan or advance made or continued
               by a Tranche A Lender 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.

                                       34
<PAGE>

        "STANDSTILL PERIOD": A period initiated by written notice by the Tranche
               B Lender to the Agent in  accordance  with  Section  14.2,  which
               period  is 15 days for a  Borrowing  Base  Default  or  Tranche B
               Payment Default or 30 days for a General Default.
        "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  Tranche  A
               Lenders or Delinquent  Tranche B Lender)  holding 66-2/3% or more
               of the  aggregate  of the  Dollar  Commitments  of the  Tranche A
               Lenders and Tranche B Lender (other than Dollar  Commitments held
               by a Delinquent  Tranche A Lender or Delinquent Tranche B Lender)
               and, to the extent that the Dollar Commitments of the Lenders are
               no longer in effect, based upon the outstanding  Liabilities held
               by such Lenders.
        "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

                                       35
<PAGE>

               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":  FRF.
        "SWINGLINE LOAN CEILING":  Ten Million Dollars ($10,000,000.00).
        "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.
        "TRANCHE A CONSENT": The Consent of all Tranche A Lenders other than the
               Delinquent Tranche A Lenders.
        "TRANCHE A  COMMITMENT":  With  respect to each  Tranche A Lender,  that
               respective Tranche A Lender's Tranche A Dollar Commitment.
         "TRANCHE  A  DEBT":  The  aggregate  of  the  Borrowers'   Liabilities,
               obligations  and  indebtedness  of any character to the Tranche A
               Lenders  that arise from or are  related to the  Tranche A Loans,
               other than Tranche A Fees.
        "TRANCHE A DOLLAR COMMITMENT": As set forth on Schedule B annexed hereto

                                       36
<PAGE>

               (as such amounts may change in accordance  with the provisions of
               this  Agreement),  for each Tranche A Lender,  provided  that the
               aggregate  of the Tranche A Dollar  Commitments  shall not exceed
               One Hundred Twenty Million Dollars ($120,000,000.00).
        "TRANCHE A EARLY TERMINATION FEE":  As defined in Section 2.14(a).

        "TRANCHE A FEES" All fees (such as a fee on account of the  execution of
               an amendment of the Loan  Agreement)  payable by the Borrowers in
               respect of the  Tranche A Loans,  other  than any fee  payable as
               provided  in the Agent Fee Letter,  and any amount  payable to an
               Agent as  reimbursement  for any cost or expense incurred by that
               Agent on account of the  discharge of that  Agent's  duties under
               this Agreement or the other Loan Documents.

        "TRANCHE A LENDERS": Each Tranche A Lender to which reference is made in
               the Preamble of this Agreement and any other Person who becomes a
               "Tranche  A Lender" in  accordance  with the  provisions  of this
               Agreement.

        "TRANCHE A  LOAN  CEILING":  The  aggregate  amount  of  the  Tranche  A
               Commitments  of all Tranche A Lenders  which shall not exceed One
               Hundred Twenty Million Dollars ($120,000,000.00).
        "TRANCHE A OBLIGATIONS":   The aggregate of Tranche A Debt and Tranche A
               Fees.

        "TRANCHE A PERCENTAGE  COMMITMENT":  As set forth on Schedule B, annexed
               hereto  reflecting,  with  respect to any  Tranche A Lender,  the
               ratio of (i) the  amount of the  Tranche A Dollar  Commitment  of
               such Tranche A Lender to (ii) the aggregate amount of the Tranche

                                       37
<PAGE>

               A Dollar Commitments of all Tranche A Lenders (as such percentage
               may change in accordance with the provisions of this Agreement).

        "TRANCHE A PRO-RATA":  With respect to any Tranche A Lender,  a fraction
               (expressed as a percentage),  the numerator of which shall be the
               amount of such Tranche A Lender's Tranche A Dollar Commitment and
               the denominator of which shall be the aggregate  amount of all of
               the Tranche A Lenders' Tranche A Dollar Commitments,  as adjusted
               from time to time in  accordance  with the  provisions of Section
               17.1 hereof,  provided  that, if the Tranche A  Commitments  have
               been terminated, the numerator shall be the unpaid amount of such
               Tranche A Lender's 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.

        "TRANCHE A TERMINATION  DATE": The earliest of (a) the Maturity Date; or
               (b) the  occurrence of any event  described in Sections  10.10 or
               10.11,  below; 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
               Sections 10.10 or 10.11,  below; or (d) the Tranche B Termination
               Date.

        "TRANCHE  B  BORROWING  AVAILABILITY":  The  sum  at  any  time  of  (i)
               Availability   less  (ii)  the  aggregate  amount  of  all  trade
               payables,  accrued  expenses  and  rents  of  Borrowers  that are
               overdue or beyond  agreed upon terms (and that are not  reflected
               in previously established Availability Reserves);  plus (iii) all
               cash and Permitted  Investments of Borrowers valued at the lesser
               of cost or market, as determined by the Agent.

                                       38
<PAGE>

        "TRANCHE B  COMMITMENT":  With  respect to each  Tranche B Lender,  that
               respective Tranche B Lender's Tranche B Dollar Commitment.

        "TRANCHE B COMMITMENT FEE":  Defined in Section 2.12(b).

        "TRANCHE B COMMITMENT PERIOD": The period commencing on the Closing Date
               and ending on the 180th day  following  the  Closing  Date (or if
               that  date  is  not  a  Business  Day  that   Business  Day  that
               immediately precedes the 180th day after the Closing).

        "TRANCHE  B  DEBT":   The  aggregate  of  the  Borrowers'   Liabilities,
               obligations,  and  indebtedness of any character to the Tranche B
               Lender arising from or related to the Tranche B Loan,  other than
               Tranche B Fees.

        "TRANCHE B DEBT PAYMENT":  Any payment of principal,  interest  (whether
               payable in cash or  otherwise),  fees,  premium,  or otherwise on
               account of the Tranche B Debt.
        "TRANCHE B DEFERRED INTEREST":  Defined in Section 2.10(f)(i).
        "TRANCHE B DOLLAR COMMITMENT": As set forth on Schedule B annexed hereto
               (as such amounts may change in accordance  with the provisions of
               this  Agreement)  for each  Tranche B Lender,  provided  that the
               aggregate  amount of the Tranche B Dollar  Commitments  shall not
               exceed Ten Million Dollars ($10,000,000.00).
        "TRANCHE B EARLY TERMINATION FEE":   Defined in Section 2.14(b).

        "TRANCHE B FEES" All fees (such as Tranche B Commitment  Fee,  Tranche B
               Early  Termination Fee and any fee on account of the execution of
               an amendment of the Loan  Agreement)  payable by the Borrowers in
               respect of the Tranche B Loan,  other than any amount  payable to
               the Agent as reimbursement for any cost or expense incurred by

                                       39
<PAGE>

               the Agent on account of the discharge of the Agent's duties under
               this Agreement or the other Loan Documents.

        "TRANCHE B FEE LETTER":  That certain letter of even date by and between
               the Lead Borrower and the Tranche B Lender.

        "TRANCHE B FUNDING DATE":  The date that the Tranche B Loan is  advanced
               to the Lead Borrower.

        "TRANCHE B FUNDED AMOUNT":  The  principal amount of the Tranche B  Loan
               on the Tranche B Funding Date.

        "TRANCHE B INTEREST":  Defined in Section 2.10(f)(i).

        "TRANCHE B LENDER":  Defined  in   the   Preamble,   together  with  its
               successors and assigns.

        "TRANCHE B LOAN":  Defined in Section 2.1(b).

        "TRANCHE B LOAN CEILING":  $10,000,000.00.

        "TRANCHE B MATURITY DATE":  The Maturity Date.

        "TRANCHE B MINIMUM LOAN":  $7,000,000.00.

        "TRANCHE B NOTE":  Defined in Section 2.8(b).

        "TRANCHE B OBLIGATIONS":  The  aggregate of Tranche B Debt and Tranche B
               Fees.

                                       40
<PAGE>


        "TRANCHE B PAYMENT  DEFAULT"  The failure of the  Borrowers to have made
               any  Tranche  B Debt  Payment  prior to the  expiry  of any grace
               period applicable to such payment.

        "TRANCHE B TERMINATION  DATE": The earliest of (a) the Maturity Date; or
               (b) the  occurrence of any event  described in Sections  10.10 or
               10.11,  below; 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
               Sections 10.10 or 10.11,  below; or (d) the Tranche A Termination
               Date.

        "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  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:
                               Fleet National Bank
                                ABA No. 01100390
                               Acct Name:     Fleet 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.

                                       41
<PAGE>

        "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
               Tranche A Lenders.
        "UNANIMOUS TRANCHE A CONSENT":  The  Consent  of  all  Tranche A Lenders
               other than Delinquent Tranche A Lenders.
        "UNDERWRITING FEE":  Defined in Section 2.12.
ARTICLE II - THE REVOLVING CREDIT AND TRANCHE B LOAN FACILITY:
        2.1    Establishment of Revolving Credit and Tranche B Loan Facility.
               -------------------------------------------------------------
        (a) ____ The Tranche A Lenders  hereby  establish  a  revolving  line of
credit the "Revolving  Credit") in the  Borrowers'  favor pursuant to which each
Tranche A 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  Tranche  A  Lender's  Commitment  Percentage  of
Availability,  up to the  maximum  amount  of that  Tranche  A  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) ____ The Tranche B Lender agrees, subject to, and in accordance with
this Agreement,  acting through the Agent, to make a loan (the "Tranche B Loan")
to the  Borrowers  in a single  drawing  made  during the  Tranche B  Commitment
Period, in such amount as may be requested by Lead Borrower pursuant to a timely

                                       42
<PAGE>

notice  pursuant to Section 2.4(g)  hereof,  which amount shall be not less than
the Tranche B Minimum  Loan nor more than the Tranche B Loan  Ceiling;  provided
that on the date of such  request  and on the  Tranche  B Funding  Date:  (i) no
Borrower is in default under any Indebtedness in excess of $10,000,000.00;  (ii)
no event or condition  described in Sections  10.10 or 10.11 has occurred and is
continuing with respect to any Borrower (without giving effect to the sixty (60)
day cure period with respect to any  complaint,  application  or petition  filed
against any Borrower under the Bankruptcy Code or any other  insolvency  statute
or  procedure);  (iii)  Borrowers  shall have satisfied on the Tranche B Funding
Date each of the conditions  set forth in Section 2.4(f) hereof;  (iv) the Agent
and  Tranche  B Lender  shall  have  received  evidence,  in form and  substance
satisfactory  to each of  them,  that  the  Agent,  on  behalf  of the  Lenders,
continues to have valid perfected,  first priority security  interests and liens
upon the  Collateral,  subject  only to  Permitted  Encumbrances;  and (v) after
giving effect to the funding of the Tranche B Loan and all Permitted Repurchases
or Debt  Retirements  made  between the  Closing  Date and the Tranche B Funding
Date,  the Tranche B  Borrowing  Availability  equals or exceeds  the  following
amounts for the Tranche B Funding Date occurring during the following  specified
periods:

<TABLE>

          ---------------------------------------------- -----------------------
                             Period                       Tranche B Borrowing
                                                                    Availability
          ---------------------------------------------- -----------------------
          ---------------------------------------------- -----------------------

          ---------------------------------------------- -----------------------
          ---------------------------------------------- -----------------------
          <S>                                            <C>
          Closing Date - November 30, 2000               $66,000,000
          ---------------------------------------------- -----------------------
          ---------------------------------------------- -----------------------
          December 1, 2000 - December 31, 2000           $101,000,000
          ---------------------------------------------- -----------------------
          ---------------------------------------------- -----------------------
          January 1, 2001 - January 31, 2001             $82,000,000
          ---------------------------------------------- -----------------------
          ---------------------------------------------- -----------------------
          February 1, 2001 - February 28, 2001           $77,000,000
          ---------------------------------------------- -----------------------
          ---------------------------------------------- -----------------------
          March 1, 2001 - March 31, 2001                 $75,000,000
          ---------------------------------------------- -----------------------
          ---------------------------------------------- -----------------------
          April 1, 2001 - April 30, 2001                 $67,000,000
          ---------------------------------------------- -----------------------
</TABLE>

                                       43
<PAGE>


        There shall be only one borrowing  under the Tranche B Loan Facility and
in the event that a request for the Tranche B Loan is not timely made during the
Tranche B  Commitment  Period,  the  Tranche B Lender's  commitment  to make the
Tranche B Loan shall  terminate at the close of business on the last date of the
Tranche B Commitment Period.
        (c)    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  (excluding the  outstanding  amount of the
                             Tranche B Loans).
                      Minus
                      (C)    The then Stated Amount of all L/C's.
              (ii)   "BORROWING  BASE"  refers  at  any  time to the  lesser  of
                      2.1(c)(ii)(A), 2.1 (c)(ii)(B) or 2.1(c)(ii)(C), where:
                      (A)    is the Tranche A 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

                                       44
<PAGE>


                             (II)   The product of the  Inventory  Advance  Rate
                                    multiplied   by  the   Cost  of   Acceptable
                                    Inventory (Net of Inventory  Reserves),  not
                                    to exceed the Inventory Appraisal Cap.
                             Plus

                             (III)  The  product of  Ninety-Five  percent  (95%)
                                    multiplied by Acceptable Cash Collateral.
                             Minus

                             (IV)  The  then   aggregate  of  the   Availability
                                   Reserves.

                      (C)    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

                             (II)   The product of the Overall Inventory Advance
                                    Rate  multiplied  by the Cost of  Acceptable
                                    Inventory (Net of Inventory  Reserves),  not
                                    to exceed the  Overall  Inventory  Appraisal
                                    Cap.
                             Plus

                             (III)  The  product of  Ninety-Five  percent  (95%)
                                    multiplied by Acceptable Cash Collateral.
                             Minus

                             (IV)   The  then  aggregate  of  the   Availability
                                    Reserves.

                                       45
<PAGE>

                              Minus

                             (V)    ____ The  unpaid  principal  balance  of all
                                    outstanding  Tranche B Loans and all accrued
                                    and unpaid Tranche B Deferred Interest.
                      (d)    Availability  shall be  based upon  Borrowing  Base
Certificates furnished as provided in Section 5.4 hereof.
                      (e)    The  proceeds  of  borrowings  under  the Revolving
Credit and of the Tranche B Loan shall be used
                             (i)  for  on-going  working capital requirements of
                                   Borrowers;
                             (ii) for Permitted Repurchases and Debt Retirement;
                                  and
                             (iii)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 Tranche A 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  (excluding  the
outstanding  amount of the  Tranche B Loan) plus the then  stated  amount of all
L/Cs would as a result thereof exceed the Borrowing Base.
               (b) ______ The Tranche A Lenders'  obligations  among  themselves
are subject to Section  13.3(a) (which relates to each Tranche A 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 Tranche A 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 Tranche A
Lenders to do so on any other occasion.

                                       46
<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  in  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

                                       47
<PAGE>

        to be made. Base Margin Loans requested by the Lead 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.
                      (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

                                       48
<PAGE>

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 or for the Tranche B
Loan 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) 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 this Agreement;
                      (iii) Each  representation  which is made herein or in any
        of the other Loan  Documents  is then true and  complete in all material
        respects  as of 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,  or such  representation  relates  to a
        changed  condition  which change is permitted  under the  covenants  set
        forth in this Agreement); and
                      (iv)   No Suspension Event is then continuing.
               (g)      Subject to the provisions  of this Agreement, during the
Tranche B Commitment  Period the Lead Borrower may request the Tranche B Loan by
giving the Agent not less than thirty (30) days prior written  notice thereof in
the form of EXHIBIT 2.4(G).

                                       49
<PAGE>

               (h)  ______  During  the  continuance  of any  Suspension  Event,
neither the Agent on behalf of the Tranche A Lenders, the Tranche A Lenders, the
Swingline  Lender nor the Tranche B 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 .
               ----------------
               (a) ______ A loan or advance under this  Agreement  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 this Agreement (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,

                                       50
<PAGE>

               the wire transfer of which was properly 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
Revolving Credit Loans and are secured as "Liabilities".

                                       51
<PAGE>

               (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.
               (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

                                       52
<PAGE>

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 records  concerning the loan arrangement  contemplated
herein and the Liabilities  shall be prima facie evidence of the items described
therein.
        2.8    Notes.
               -----
               (a) ______ The  obligation to repay the  Revolving  Credit Loans,
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 Tranche A 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.

                                       53
<PAGE>

               (b) ______ The Borrowers' obligation to repay the Tranche B Loan,
with  interest as provided  herein,  shall be  evidenced by a Note (a "TRANCHE B
NOTE") in the form of  EXHIBIT  2.8(B),  annexed  hereto,  executed  by the Lead
Borrower on behalf of itself and the other  Borrowers,  payable to the Tranche B
Lender. Neither the original nor a copy of the Tranche B Note shall be required,
however,  to establish or prove any  Liability.  In the event that the Tranche B
Note is lost, mutilated, or destroyed, the Lead Borrower on behalf of itself and
the other  Borrowers  shall  execute  and deliver a  replacement  thereto to the
Tranche B Lender.
        2.9    Payment of Loans.
               ----------------
               (a)  ______  The  Borrowers  may repay all or any  portion of the
principal balance of the Loan Account with respect to the Revolving Credit Loans
from time to time until the Termination Date. Such payments when made in respect
of Revolving  Credit Loans 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

                                       54
<PAGE>

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.
        (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 Tranche A Lender and hold each Tranche A Lender harmless from and
against any loss, cost or expense (including loss of anticipated  profits) which
such Tranche A 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 Tranche A 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  Eurodollar  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 Eurodollar
        Lender to lenders of funds  obtained by it in order to maintain any such
        Loans as "breakage fees".

                                       55
<PAGE>

               (f) ______ Upon thirty (30) days prior written notice by the Lead
Borrower to the Tranche B Lender,  the  principal  balance of the Tranche B Debt
may be prepaid in whole or in part at any time as follows:
                      (i) ____  With  the net  proceeds  of the  sale of  equity
               securities,  the issuance of which is otherwise permitted in this
               Agreement.
                      (ii)   With proceeds of Revolving Credit Loans.
        2.10   Interest Rates.
               --------------
               (a) ______ Each Revolving  Credit Loan 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.
               (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

                                       56
<PAGE>

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) ______ 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 ($35,000,000.00),  or in
the case of Tier II Loans,  below $15 Million  ($15,000,000.00),  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  ($35,000,000.00)  or more, and in the case of Loans
priced at Tier I, Availability is $15 Million ($15,000,000.00) or more.


                               MARGIN PRICING GRID
<TABLE>
--------------------------------------------------------------------------------
<S>        <C>                         <C>                   <C>
TIER       MINIMUM AVAILABILITY, FOR   EURODOLLAR MARGIN     BASE MARGIN
           PRECEDING MONTH             (BASIS POINTS)        (PERCENTAGE)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
I          $15 Million or less         225                   0.50
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
II         More than $15 Million, but  200                   0.25
           less than $35 Million
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
III        $35 Million or more         175                   0
--------------------------------------------------------------------------------
</TABLE>

               (f)      Tranche B Loan.
                      (i) ____  Subject  to  Section  2.10(f)(iii)  hereof,  the
               Tranche B Loan shall bear interest  (computed on the basis of the
               actual  number of days  elapsed  over year of 360 days) at a rate
               per annum equal to Fifteen and One-Quarter Percent (15.25%) (the

                                       57
<PAGE>

               "TRANCHE B INTEREST").  Subject to Section  2.10(f)(iii)  hereof,
               Borrowers  shall  have the  option to pay all or a portion of the
               interest  payable  on the  Tranche B Loan in  excess of  Thirteen
               Percent  (13.00%)  per annum by adding such excess  amount to the
               principal  amount  outstanding  under  the  Tranche B Note on the
               first  Business  Day of  each  calendar  month  (the  "TRANCHE  B
               DEFERRED  INTEREST").  The Lead Borrower shall give the Agent and
               the Tranche B Lender an irrevocable  notice that it will exercise
               such right at least three (3) Business Days prior to any Interest
               Payment Date as to which such right is exercised.
                      (ii)  Subject  to  Section  2.10(f)(iii)  hereof,  accrued
               Interest  on the  Tranche  B Loan,  other  than that  portion  of
               interest on the Tranche B Loan which the Borrowers'  elect to add
               to the  principal  amount  of the  Tranche  B Note as  Tranche  B
               Deferred Interest in accordance with Section 2.10(f)(i), shall be
               payable  in arrears on the first  Business  Day of each  calendar
               month and on the Tranche B Maturity Date. Accrued interest on the
               Tranche  B Loan  which  Borrowers  elect to add to the  principal
               amount  of  the  Tranche  B  Note  in  accordance   with  Section
               2.10(f)(i)  hereof  shall  be  payable  as  provided  in  Section
               2.10(f)(i).
                      (iii)  Effective  upon  the  occurrence  and at all  times
               during the  continuance  of any Event of Default  (and whether or
               not the Agent  exercises the Agent's rights on account  thereof),
               the Tranche B Loan shall  accrue  interest the rate of 18.25% per
               annum (computed in the basis of the actual number of days elapsed
               over a year of 360 days) and such  interest  shall be  payable in
               cash on demand.

                                       58
<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 and an  UNDERWRITING  FEE as provided in a separate AGENT FEE LETTER,  dated
November  30, 1999,  as amended by the  amendment  thereto  dated as of the date
hereof, from the Agent to the Borrowers (the "Agent Fee Letter").
        2.12   Amendment Fee; Tranche B Commitment Fee.
               ---------------------------------------
               (a) ______ In  addition  to any other fee or expense  paid by the
Borrowers on account of the Revolving Credit,  the Borrowers shall pay the Agent
for the Tranche A Pro-Rata  benefit of the Tranche A Lenders an AMENDMENT FEE as
provided in the Tranche A Fee Letter dated as of the date hereof (the "Tranche A
Fee Letter").
               (b) ______ In  addition  to any other fee or expense  paid by the
Borrowers on account of the Tranche B Loan facility, the Borrowers shall pay the
Agent for the account of Tranche B Lender a TRANCHE B COMMITMENT FEE as provided
in the Tranche B Fee Letter.
        2.13   Line  (Unused)  Fee;  Annual  Facility  Fee.
               -------------------------------------------
               (a) In addition to any other fee or expense paid by the Borrowers
on account of the Revolving  Credit,  the Borrowers  shall pay the Agent for the
Pro-Rata benefit of the Tranche A 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 four tenths of one percent (0.40%) 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:
               (i)      the Tranche A Loan Ceiling

                        and

                                       59
<PAGE>

               (ii)     the aggregate of
                        (A)  the  unpaid  principal  balance  of  the  Revolving
                             Credit Loans.

                        Plus

                        (B)  the Stated Amount of all then outstanding L/C's.
               (b)      In  addition  to any  other fee or  expense  paid by the
Borrowers on account of the Tranche B Loan facility, the Borrowers shall pay the
Agent for the account of the Tranche B Lender an ANNUAL FACILITY FEE as provided
in the Tranche B Fee Letter.
               (c) ______ In  addition  to any other fee or expense  paid by the
Borrowers on account of the Tranche B Loan facility the Borrowers  shall pay the
Agent for the account of Tranche B Lender a TRANCHE B COLLATERAL  MONITORING FEE
as provided in the Tranche B Fee Letter.
        2.14   Early  Termination  Fees.
               ------------------------
               (a)  ______ In the event  that the  Tranche  A  Termination  Date
occurs,  for any reason,  prior to November 30, 2000, the Borrower shall pay the
Agent, for the Pro-Rata  benefit of the Tranche A Lenders,  as a TRANCHE A EARLY
TERMINATION FEE an amount equal to one half of one percent (0.5%) of the Tranche
A Loan Ceiling in effect as of the date of this Agreement.
               (b) ______ In the event the Tranche B  Termination  Date  occurs,
for any  reason,  prior to the  second  anniversary  of the  Closing  Date,  the
Borrower  shall pay the Agent,  for the  account of the  Tranche B Lender,  as a
TRANCHE B EARLY TERMINATION FEE as provided in the Tranche B Fee Letter.
        2.15   Concerning Fees.
               ---------------
               The  Borrowers  shall not be entitled  to any  credit,  rebate or
repayment of the Agent's Fee,  Underwriting  Fee, Tranche B Commitment Fee, Line
(Unused) Fee,  Tranche B Annual  Facility Fee,  Tranche B Collateral  Monitoring
Fee, Tranche A Early  Termination Fee, Tranche B Early  Termination Fee or other
fee previously earned by the Agent or any Lender pursuant to this Agreement,

                                       60
<PAGE>

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:

                                       61
<PAGE>

                      (i) ____ Those included in, or tested by, the  definitions
        of  "Acceptable  Inventory,"  "Acceptable  L/C  Inventory,"  "Acceptable
        In-Transit Inventory," "Retail," and "Cost";
                      (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,

                                       62
<PAGE>

                      (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.
               (c) ______ The Lead Borrower shall execute such  documentation to
apply for and support the issuance of a 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 a 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 a Tranche
        A  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 a 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

                                       63
<PAGE>

honored  under any L/C and any other  amount  for which the Lead  Borrower,  the
Issuer,  or any Tranche A 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 Tranche A 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  Tranche A 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, 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,

                                       64
<PAGE>

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;

                                       65
<PAGE>

                      (ii)     Select a paying bank; and
                      (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 Tranche A 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 Tranche A 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 either,  at the election of the Issuer,  the Uniform  Customs and
Practice for Documentary Credits, International Chamber of Commerce, Publication
No. 500,  and any  subsequent  revisions  thereof or the  International  Standby
Practices - ISP 98, International Chamber of Commerce Publication,  No. 590, 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:

                                       66
<PAGE>

                      (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 Tranche A 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  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,

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<PAGE>

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  affecting the principal market
        in Eurodollars in which Fleet National Bank  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

                                       68
<PAGE>

               impracticable or unlawful by the occurrence of a contingency that
               materially  and  adversely   affects  the  applicable  market  or
               compliance  by the Agent or any  Tranche  A 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  Tranche  A 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 Tranche
        A 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)

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<PAGE>

                             (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.
        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;

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<PAGE>

                      (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  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

                                       71
<PAGE>

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  form 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 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  2.2
l(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.

                                       72
<PAGE>

        2.22   Lenders' Commitments.
               --------------------
               (a) ______ The  obligations  of each Tranche A Lender are several
and not joint.  As between the  Tranche A Lenders and the Tranche B Lender,  the
obligations  are  several  and not  joint.  No  Tranche A 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  Tranche  A  Lender's  Tranche A  Commitment
               Percentage of the subject loan or advance or of Availability; and
                      (ii)     that Tranche A Lender's  unused  Tranche A Dollar
               Commitment
               (b)      No Tranche A Lender  shall have  any  liability  to  any
Borrower on account of the failure of any other  Tranche A 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 Tranche A Dollar Commitments, Tranche A Commitment
Percentages,  and  identities  of the  Tranche  A Lenders  (but not the  overall
Tranche A Commitment) may be changed,  from time to time by the  reallocation or
assignment of Tranche A Dollar Commitments and Tranche A Commitment  Percentages
amongst the  Tranche A Lenders or with other  Persons  who  determine  to become
"Tranche A 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 Tranche 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.

                                       73
<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 to 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 Tranche A 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   Tranche  A  Dollar
        Commitments and Tranche A Commitment Percentages.
                      (ii)  _____  Such  change  shall  be  effective  from  the
        effective  date specified in such written notice and any Person added as
        a Tranche A Lender shall have all rights and  privileges  of a Tranche A
        Lender  hereunder  thereafter  as if such Person had been a signatory to
        this  Agreement  and any other  Loan  Document  to which  the  Tranche A
        Lenders  are  signatories  and any  person  removed  as a  Lender  shall
        thereafter  be  relieved of any  obligations  or  responsibilities  of a
        Tranche A Lender hereunder and thereunder.

                                       74
<PAGE>

        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  o f the  undertakings  of each other Borrower to
accept joint and several liability for the Liabilities.
               (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.  In addition to and
without in any way limiting the foregoing,  each Borrower  jointly and severally
absolutely and  unconditionally  guarantees to Agent and the Lenders the payment
and  performance of all the Liabilities and agrees to be liable for the full and
indefeasible payment and performance of all the Liabilities. This guarantee is a
continuing guarantee,  and shall not be terminated or terminable when any of the
Liabilities or Commitments  are  outstanding  and shall apply to all Liabilities
whenever arising.
               (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

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<PAGE>

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 or Tranche B Loan 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
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,

                                       76
<PAGE>

substitution or release, in whole or in part, of any 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.  Each Borrower waives notice of acceptance, the making of loans and
providing other financial accommodations to the other Borrowers and presentment,
demand,  protest,  notice of protest,  notice of  nonpayment  or default and all
other  notices to which any  Borrower  or a  guarantor  is  entitled  (except as
explicitly provided in this Agreement).  Each Borrower hereby further waives and
relinquishes  any and all other  defenses  or rights  that it might  assert as a
surety or guarantor of the 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. No invalidity,  irregularity or  unenforceability of all or
any  part  of the  Liabilities  shall  affect,  impair  or be a  defense  to the
obligations of the Borrowers  hereunder,  nor shall any other circumstance which
might otherwise  constitute a defense available or legal or equitable  discharge
of the Lead Borrower or any other Borrower discharge any other Borrower in

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<PAGE>

respect of the  Liabilities  or such  Borrowers in respect of their  obligations
hereunder or otherwise affect, impair or be a defense to such obligations.
               (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 arbitrator that any Borrower other than
the Lead Borrower is a guarantor,  each Borrower,  other than 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.
        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

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<PAGE>

other action as is reasonably  necessary to administer the Revolving  Credit and
Tranche B Loan 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  Tranche A Lender,  the  SwingLine  Note to the
SwingLine Lender, the Tranche B Note to the Tranche B 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 and Tranche B Loan 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  northe
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,  he 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

                                       79
<PAGE>

        As a condition to the effectiveness of this Agreement, the establishment
of the  Revolving  Credit  and the  making of the  Tranche  B Loan,  each of the
documents respectively described in Sections 3.1 through and including 3.4 (each
in form and substance  satisfactory to the Agent,  the Tranche A Lenders and the
Tranche B Lender)  shall have been  delivered to the Agent,  and the  conditions
respectively  described in Sections 3.5 through and including  3.10,  shall have
been satisfied (the "Closing Date"):
        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 and Tranche B Lender.
        3.3.   Additional Documents.
               --------------------
               Such additional instruments and documents as the Agent, Tranche B
Lender or their respective counsel reasonably may require or request,  including
the following:

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<PAGE>

               (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  Tranche A
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.
               (d)      Tranche B  Note,  payable to the Tranche B Lender in the
amount of the Tranche B Loan Ceiling.
        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

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<PAGE>

subsequent  to,  such  establishment,  Availability  shall be not less  than $65
Million  ($65,000,000.00),  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. All fees due on
the Closing  Date with  respect to the Tranche B Loan and all costs and expenses
incurred  by the  Tranche  B  Lender  in  connection  with  the  Tranche  B Loan
(including fees and expenses of counsel to the Tranche B Lender) shall have been
paid in full.
        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 July 31,
2000. No document shall be deemed delivered to the Agent or any Tranche A 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 and Tranche B Lender at their respective head offices.
        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

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under this  Agreement  (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 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.

                                       83
<PAGE>

               (c)      No  Borrower  shall  change  its 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 with 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
principles of

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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

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<PAGE>

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,  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.   Intentionally Omitted
               ---------------------
        4.6.   Locations.
               ---------
               (a) ______ The Collateral,  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

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<PAGE>

                      (iv)     close or  open any  store as permitted by Section
4.6(d) (ii) or (iii), respectively.
               (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;

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<PAGE>

                                    (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
                                             (2)  ____   Availability   for  the
                                    ninety  (90) days prior to such  opening was
                                    not and  immediately  after such  opening is
                                    not less than $15  Million  ($15,000,000.00)
                                    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  ($15,000,000.00).
                                    (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.

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<PAGE>

                                    (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  ($1,000,000.00)
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
($1,000,000.00) 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  ($5,000,000.00) in the aggregate,  at any one time, other than pursuant
to a consignment in respect of which either:
                      (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.
               ------------

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<PAGE>

               (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
        ($10,000,000.00) 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 ($35,000,000.00);
                      (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  forty-five  (45) days beyond  then  current  trade  terms  provided to the
subject Borrower by the supplier of such goods and services.

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<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  with respect to all of the
Liabilities, as evidenced by its written consents 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

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<PAGE>

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.
               (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.

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<PAGE>

        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 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  such  Borrower's  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.

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<PAGE>

        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.
               (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
        ($10,000,000.00) 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'

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<PAGE>

        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.
               (d)      The Borrowers  have, and hereafter  shall:  pay, as they
become  due and  payable,  all taxes and  unemployment  contributions  and other

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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  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 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

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<PAGE>

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 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 to timely 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 E mployee Benefit Plan which is a multiemployer  plan within
the meaning of Section 4001(a) of ERISA.

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        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,  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

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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  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 $5 Million  ($5,000,000.00) 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).

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<PAGE>

                             (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  ($2,000,000.00)  on an open
               account basis,  unless the Agent in its sole discretion  approves
               or  authorizes  a  greater  amount,  not  to  exceed  $5  Million
               ($5,000,000.00);  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 thirty (30) 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  Inoperative
Subsidiaries to preserve the rights to trade names in certain  jurisdictions and
may establish

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<PAGE>

additional  Subsidiaries  to own and operate store locations and make additional
investments in Subsidiaries,  so long as each such Subsidiary becomes a 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 of (or obligation as a Borrower for) the Liabilities
and  provided,  further,  if  such  Subsidiary  is and  remains  an  Inoperative
Subsidiary, the Borrowers shall have complied only with clause (A) above.
               (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  $2.5 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,   net   of   any   Permitted
               Repurchases or Debt  Repayments from the Closing Date to the date

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<PAGE>

               of such Permitted  Repurchase or Debt Retirement and after giving
               effect to the amount of such  proposed  Permitted  Repurchase  or
               Debt Retirement,  at all times during the period of 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  shall  not be less  than  $40  Million
               ($40,000,000.00);
                             (C)  ______  Availability,  on a  pro  forma  going
               forward  basis  at  all  times  during  the  twelve  (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   $10   Million
               ($10,000,000.00);
                             (D)      Any  replacement  security  for the  5.00%
               Notes  shall be  subordinated  and 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.

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<PAGE>

        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
Million  ($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 Million ($2,000,000.00)  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 $1 Million  ($1,000,000.00)  in the  aggregate  when combined with any
other  loans  or  investments   permitted  pursuant  to  Section  4.20  (a)(iii)
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,

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<PAGE>

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 August 31,
2000 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 facility contemplated

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<PAGE>

hereby (Article 3) will not be subject to a perfected security interest 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 interest 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.
               ----------------------

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<PAGE>

               (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  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.

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<PAGE>

        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:
        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

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<PAGE>

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'
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

                                       108
<PAGE>

        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

                                       109
<PAGE>

        (A) notice of rent default,  to the extent  required  under 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.
               (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.

                                       110
<PAGE>

                      (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).
                      (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 maybe 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 the  Thursday  (or the next  Business  Day, if that
Thursday is not a Business Day)  following any week (Sunday to Saturday)  during
which  average  Availability  for the prior week has been less than $25  Million
($25,000,000.00) and weekly thereafter on the Thursday of each week (or the next
Business Day, if any Thursday is not a Business Day),  for the prior week.  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.
               (c) ______ For so long as the Tranche B Loan is  outstanding  and
if the Borrowers remain on a frequency of providing  Borrowing Base Certificates
once a month, on December 20th (or the next Business Day, if December 20th is

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<PAGE>

not a Business  Day) as of December  15th (or the next Business Day, if December
15th is not a  Business  Day) to be  prepared  based upon the  information  then
available to the Borrowers.
        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.
        5.7    Quarterly Financial Reports.
               ---------------------------
               Quarterly,  within forty-five (45) days following the end of each
of its first three (3) 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 independent 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:

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<PAGE>

               (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.
        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

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<PAGE>

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 have the
right to obtain (at the  Borrower's  expense) up to three (3) 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)  provided that the appraisal  conducted pursuant to clause (f) below
shall be counted as one of the three (3) appraisals to be conducted in the year

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<PAGE>

in which such appraisal  occurs.  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  up to three (3)
commercial  finance audits (at the Borrowers'  expense) of the Borrowers'  books
and records  during any twelve (12) month 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.
               (f)  ______  In  addition  to  and  without   limitation  of  the
foregoing,  upon the Tranche B Lender's  request made during the thirty (30) day
notice period  required  under Section 2.4(g) for the borrowing of the Tranche B
Loan,  the  Borrowers  shall  permit the Agent,  at the request of the Tranche B
Lender, to arrange for an Inventory  Appraisal (at Borrowers' expense) conducted
by an appraiser  satisfactory to Tranche B Lender and the Borrowers  acknowledge
and agree  that the  Agent,  at the  request  of the  Tranche  B Lender,  in its
discretion,  may conduct a  commercial  finance  audit of  Borrower's  books and
records (at Borrowers' expense) during such period as well.
        5.11.  Additional Financial Information.
               --------------------------------

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<PAGE>

               (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.
               (e) ______  Upon the  request of the  Tranche B Lender  made from
time to time,  the Agent  will  provide to the  Tranche B Lender (at  Borrowers'
expense) copies of such reports, notices,  statements and other information that
the Borrowers furnish to the Agent hereunder.
        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  since  the date of this  Agreement  (other  than  any  Material
Accounting Changes specifically taken into account in the setting of such

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<PAGE>

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 an event  described in conditions (a) or (b) in the definition of
Cash Management Condition,  the Borrowers shall comply with the following EBITDA
covenant:  Commencing on the first Business Day of October, 2000, 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
Maturity Date.
               (b) ______ Capital  Expenditures.  At no time shall the Borrowers
permit  their  annual  aggregate  Capital  Expenditures  to exceed  the  Capital
Expenditure Cap of $25 Million  ($25,000,000.00)  through the Borrowers'  fiscal
year ending January 31, 2001 and $20 Million ($20,000,000.00) in any fiscal year
thereafter.  The  Borrowers  shall  have  the  right  to  carryover  to the next
immediately  succeeding fiscal year up to $5 Million  ($5,000,000.00)  of unused
amounts  within the Capital  Expenditure  Cap with the carryover  unused amounts
under the Capital Expenditure Cap to be deemed to be spent last in each year.

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

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<PAGE>

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.
        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.

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<PAGE>

        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 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.

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<PAGE>

                      (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  ten (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 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

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<PAGE>

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 Fleet National Bank

                      (ii)  _____  The  OPERATING  ACCOUNT:  Established  by the
        Borrowers with Fleet National Bank, from which only disbursements may be
        made and into  which  only  advances  under  the  Revolving  Credit  and
        proceeds  of the Tranche B Loan and (prior to the  occurrence  of a Cash
        Management Condition) proceeds from the DDAs, may be deposited.
               (b) ______ The  contents  of each DDA (other  than the  Operating
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)      Intentionally Omitted.
               (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 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 Operating  Account.  Following the  occurrence of a Cash
Management Condition, all Receipts shall be deposited or transferred only to the
Concentration Account.

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<PAGE>

               (b) ______ The Borrowers  shall cause the ACH or wire transfer to
the Operating  Account , 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 the contents of
        each  DDA,  net of  such  minimum  balance,  as may  be  required  to be
        maintained in the DDAs by the bank at which a DDA 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

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<PAGE>

        Receipts,  or  any  proceeds  or  collections  of any  Collateral,  such
        Receipts,  proceeds,  and  collections  shall  be held in  trust  by the
        Borrowers  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  in respect of the  Tranche A
Loans,  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 2:00 PM 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.

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<PAGE>

                      (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.
        7.6.   The Operating Account.
               ---------------------
               Except as otherwise  specifically  provided  in, r 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"):
<TABLE>

               <S> ____ <C> (a) All Accounts.
</TABLE>

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<PAGE>

<TABLE>
               <S>    <C>

               (b)    All Inventory.
               (c)    All General Intangibles.
               (d)    All Equipment.
               (e)    All Goods.
               (f)    All Fixtures.
               (g)    All Chattel Paper.
</TABLE>

               (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.
               (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.l(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

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<PAGE>

writing by a duly authorized  officer of the Agent,  which termination shall not
unreasonably be withheld.
        8.3    Delivery of Instruments, etc.
               ----------------------------
               (a) ______  Pursuant  to the terms  hereof,  the  Borrowers  have
endorsed,  assigned and delivered to the Agent all negotiable or  non-negotiable
instruments,   certificated   securities  and  chattel  paper  pledged  by  them
hereunder,  together with instruments of transfer or assignment duly executed in
blank as the Agent may have  specified.  In the event that any  Borrower  shall,
after the date of this Agreement, acquire any other negotiable or non-negotiable
instruments,  certificated  securities  or  chattel  paper to be  pledged  by it
hereunder, such Borrower shall forthwith endorse, assign and deliver the same to
the Agent,  accompanied  by such  instruments  of  transfer or  assignment  duly
executed in blank as the Agent may from time to time specify.
               (b) ______ To the extent  that any  securities  now or  hereafter
acquired by any Borrower are  uncertificated and are issued to a Borrower or its
nominee directly by the issuer thereof,  that Borrower shall cause the issuer to
note on its books the  security  interest  of the Agent in such  securities  and
shall  cause  the  issuer,  pursuant  to an  agreement  in  form  and  substance
reasonably  satisfactory to the Agent, to agree to comply with instructions from
the Agent as to such  securities,  without  further  consent of such Borrower or
such  nominee.  To the  extent  that any  securities,  whether  certificated  or
uncertificated,  or other investment  property now or hereafter  acquired by any
Borrower are held by a Borrower or its nominee through a securities intermediary
or commodity  intermediary,  that Borrower  shall,  at the request of the Agent,
cause  such  securities   intermediary  or  (as  the  cause  may  be)  commodity
intermediary,  pursuant  to  an  agreement  in  form  and  substance  reasonably
satisfactory to the Agent, to agree to comply with  entitlement  orders or other
instructions  from  the  Agent  to  such  securities  intermediary  as  to  such
securities or other investment property, or (as the case may be) to apply any

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<PAGE>

value distributed on account of any commodity  contract as directed by the Agent
to such commodity intermediary, without further consent of such Borrower or such
nominee.
               (c) ______ To the extent that any Borrower is a beneficiary under
any  written  letter of credit now or  hereafter  issued in favor of a Borrower,
that Borrower shall deliver such letter of credit to the Agent.  The Agent shall
from time to time,  at the  request  and  expense  of the  Borrowers,  make such
arrangements with the Borrowers as are in the Agent's  discretion  necessary and
appropriate  so that the  Borrowers  may make any drawing to which the Borrowers
are  entitled  under such letter of credit,  without  impairment  of the Agent's
perfected  security interest in the Borrowers' rights to proceeds of such letter
of credit or in the actual proceeds of such drawing. At the Agent's request, the
Borrowers  shall,  for any letter of  credit,  whether  or not  written,  now or
hereafter issued in favor of a Borrower as beneficiary,  execute and delivery to
the issuer and any  confirmer of such letter of credit an assignment of proceeds
form, in the favor of the Agent and satisfactory to the Agent and such issuer or
(as the case may be) such confirmer, requiring the proceeds of any drawing under
such  letter of  credit to be paid  directly  to the  Agent for  application  as
provided in this Agreement.
        8.4    Concerning  Revised Article 9 of the Uniform  Commercial  Code.
               --------------------------------------------------------------
               The parties acknowledge and agree to the following  provisions of
this  Agreement  in  anticipation  of the possible  application,  in one or more
jurisdictions to the transactions  contemplated hereby, of the revised Article 9
of the Uniform Commercial code in the form or substantially in the form approved
by the American Law Institute and the National  Conference of  Commissioners  on
Uniform State Law and  contained in the 1999 official test of Revised  Article 9
("Revised Article 9").

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<PAGE>

               (a) ______ Attachment. In applying the law of any jurisdiction in
which  Revised  Article 9 is in  effect,  the  Collateral  is all  assets of the
Borrowers,  whether or not within the scope of Revised Article 9. The Collateral
shall include, without limitation, the following categories of assets as defined
in Revised Article 9: goods (including  inventory,  equipment and any accessions
thereto),   instruments  (including  promissory  notes),   documents,   accounts
(including health-care-insurance  receivables),  chattel paper (whether tangible
or electronic),  deposit accounts,  letter-of-credit  rights (whether or not the
letter of credit is evidenced by a writing),  commercial tort claims, securities
and all  other  investment  property,  general  intangibles  (including  payment
intangibles  and software),  supporting  obligations and any and all proceeds of
any thereof,  wherever located,  whether now owned or hereafter acquired. If any
Borrower shall at any time, whether or not Revised Article 9 is in effect in any
particular jurisdiction,  acquire a commercial tort claim, as defined in Revised
Article 9, that Borrower shall immediately  notify the Agent in a writing signed
by such  Borrower  of the brief  details  thereof and grant to the Agent in such
writing a security  interest therein and in the proceeds  thereof,  all upon the
terms  of  this  Agreement,  with  such  writing  to be in  form  and  substance
satisfactory to the Agent.
               (b) ______  Perfection  by Filing.  The Agent may at any time and
from time to time,  pursuant to the  provisions of Section 9.1,  file  financing
statements,  continuation  statements and  amendments  thereto that describe the
Collateral as all assets of the  Borrowers or words of similar  effect and which
contain any other  information  required by Part 5 of Revised  Article 9 for the
sufficiency or filing office acceptance of any financing statement, continuation
statement or amendment,  including  whether a Borrower is an  organization,  the
type of organization and any organization  identification  number issued to such
Borrower.  The  Borrowers  agree to furnish  any such  information  to the Agent
promptly upon request. Any such financing statements, continuation statements or
amendments may upon notice to Lead Borrower and the failure of the applicable

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<PAGE>

Borrower to sign such financing  statements within seven (7) days of such notice
(or, if an Event of Default has occurred,  without such notice) be signed by the
Agent on behalf of the  Borrowers,  as  provided in this  Agreement,  and may be
filed at any time in any  jurisdiction  whether or not Revised Article 9 is then
in effect in that jurisdiction.
               (c) ______ Other Perfection, etc. The Borrowers shall at any time
and from  time to time,  whether  or not  Revised  Article 9 is in effect in any
particular jurisdiction, take such steps as the Agent may reasonably request for
the Agent (a) to obtain an  acknowledgement,  in form and  substance  reasonably
satisfactory  to  the  Agent,  of any  bailee  having  possession  of any of the
Collateral  that the bailee holds such  Collateral for the Agent,  (b) to obtain
"control" of any investment property, deposit accounts,  letter-of-credit rights
or electronic chattel paper (as such terms are defined in Revised Article 9 with
corresponding provisions in Rev. ss.ss.9-104, 9-105, 9-106 and 9-107 relating to
what  constitutes  "control" for such items of Collateral),  with any agreements
establishing control to be in form and substance  satisfactory to the Agent, and
(c)  otherwise to insure the  continued  perfection  and priority of the Agent's
security interest in any of the Collateral and of the preservation of its rights
therein,  whether in  anticipation  and following the  effectiveness  of Revised
Article 9 in any jurisdiction.
               (d) ______ Savings Clause.  Nothing  contained in his Section 8.4
shall be construed to narrow the scope of the Agent's  security  interest in any
of the Collateral or the perfection or priority  thereof or to impair  otherwise
limit any of the  rights,  powers,  privileges  or  remedies of the Agent or any
Lender  hereunder  except  (and then only to the  extent)  mandated  by  Revised
Article 9 to the extent then applicable.
ARTICLE  IX - AGENT AS  BORROWERS' ATTORNEY-IN-FACT:

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<PAGE>

        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 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

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<PAGE>

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.

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

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<PAGE>

payable, at the option of the Agent or at the direction of the requisite Lenders
(as provided in Article XVI) 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 or Tranche B Loan.
               -------------------------------------------------
               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 or the Tranche B Loan.
        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 or the Tranche B Loan.
        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 pr ovisions hereof:



                            Section                          Relates to
                            -------                          ----------
<TABLE>
                             <S>                 <C>
                             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
                             4.25                      Additional Assurances
                             5.1                         Maintain Records
</TABLE>

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<PAGE>

<TABLE>
                         <S>                    <C>
                             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
</TABLE>


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) results in an  impairment,  loss or diminution of Collateral of $5
Million  ($5,000,000.00)  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 Million ($5,000,000.00) to any creditor other than

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<PAGE>

the Agent or any Lender has been  accelerated  or,  without  the consent of such
Borrowers twenty (20) Leases are terminated at any given time.
        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  ($5,000,000.00)  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, means, 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  ($5,000,000.00)  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.

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<PAGE>

               (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
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

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<PAGE>

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.
        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

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<PAGE>

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.
        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;

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<PAGE>

               (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 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

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<PAGE>

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
the manner set forth in Section 14.9.
        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 premises to this Article XI, nor for any charge

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<PAGE>

(such  as  wages  for  the  Borrowers'  employees  and  utilities)  incurred  in
connection with the Agent's exercise of the Agent's Rights and Remedies.
        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.

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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.

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 or the Tranche B Loan) 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:            Fleet Retail Finance Inc.
                                    40 Broad Street
                                    Boston, Massachusetts 02109
                                    Attention: Ms.  Sally A. Sheehan, Director
                                    Fax: 617-434-4339

        With a copy to:             Brown Rudnick Freed & Gesmer
                                    One Financial Center
                                    Boston, Massachusetts 02111
                                    Attention: Peter J.  Antoszyk, Esquire
                                    Fax: 617-856-8201

        If to the Tranche B Lender: Back Bay Capital Funding, LLC
                                    40 Broad Street, Boston, Massachusetts 02109
                                    Attention:  Kristan M. O'Connor,
                                                Vice President
                                    Fax: 617-434-4312

        With a copy to:             Bingham Dana LLP
                                    150 Federal Street
                                    Boston, MA 02110
                                    Attention:  Edwin E. Smith, Esq.
                                    Fax: 617-951-8736

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<PAGE>


        If to the Borrowers:        Lechters, Inc.
                                    One Cape May Street
                                    Harrison, New Jersey 07029
                                    Attention: Daniel L. Anderton,
                                               Chief Financial Officer
                                    Fax: 973-481-7330

        With a copy to:             Lechters, Inc.
                                    One Cape May Street
                                    Harrison, New Jersey 07029
                                    Attention: Sheon Karol, General Counsel
                                    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.
                      (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.

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                      (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 Tranche A Lenders
by no later than 2:00 PM (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  Tranche A 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 Tranche A Lender's Tranche A Dollar  Commitment,  shall transfer
that  Tranche  A  Lender's  Tranche A  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.  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 Tranche A Lenders participate as follows:

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                      (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 Tranche A 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 Tranche A Lenders  participate.  In
        either such event,  the Agent shall advise each Tranche A 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 Tranche A Lender.
               (d)      The  SwingLine  Lender,  in its  capacity  as  SwingLine
Lender, is not a "Tranche A Lender" for any of the following purposes:
                      (i)      Except as otherwise  specifically provided in the
        relevant Section, any distribution pursuant to Section 14.9.
                      (ii)     Determination of whether the requisite  Tranche A
        Commitment Percentage has Consented to action requiring such Consent.
        13.3   Agent's Covering of Fundings.
               ----------------------------
               (a) ______  Each  Tranche A Lender  shall make  available  to the
Agent, as provided herein, that Tranche A Lender's Commitment  Percentage of the
following:
                      (i) ______ Each  Revolving  Credit Loan, up to the maximum
        amount of that Tranche A Lender's Tranche A 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).

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               (b)    In all circumstances, the Agent may:
                      (i) ______  Assume that each Tranche A Lender timely shall
        make available to the Agent that Tranche A Lender's Tranche A 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  Tranche  A  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 Tranche A Lender  timely shall pay,
        and shall  make  available,  to the Agent all other  amounts  which that
        Tranche A 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 Tranche A Lender's
Tranche A Commitment  Percentage of one (1) or more Revolving  Credit Loans, L/C
drawings, or any other amount to be made available hereunder or under any of the
Loan Documents with respect to the Revolving  Credit,  which amounts a Tranche A
Lender (a  "DELINQUENT  TRANCHE A 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  Tranche A
        Lender.

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                      (iii) ____ The  Delinquent  Tranche A 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  Tranche A 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  Tranche A
        Lender.  Such payments shall be deemed made first towards the amounts in
        respect of which the Agent's  Cover was  provided  and only then towards
        amounts in which the Delinquent Tranche A 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  Tranche A 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  Tranche A Lender would otherwise have been entitled to a
        distribution.
                      (v)  ______   Subject  to  Subsection   13.3(c)(iv),   the
        Delinquent  Tranche A Lender  shall be entitled to receive any  payments
        from the Borrower which do not relate to an Agent's Cover.
               (d)      A Delinquent Tranche A Lender shall not be relieved,  by
virtue of any Agent's Cover or otherwise,  of any obligation of such  Delinquent

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Tranche A Lender  hereunder (all and each of which shall  constitute  continuing
obligations on the part of any Delinquent Tranche A Lender).
               (e) ______ A Delinquent Tranche A Lender may cure its status as a
Delinquent Tranche A 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 Tranche A
        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 Tranche A Lender.
        13.4   Ordinary Course Distributions: Revolving Credit.
               -----------------------------------------------
               This Section 13.4 applies  unless the  provisions of Section 14.9
(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 Tranche
A Lender shall settle up on amounts  advanced  and payments  received  under the
Revolving Credit.
               (b)      The Agent shall  distribute to the SwingLine  Lender and
to each Tranche A 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

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purposes  of  calculating  interest  due to a Tranche A Lender,  that  Tranche A
Lender shall be entitled to receive interest on the actual amount contributed by
that Tranche A 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  Tranche  A  Lender,  until the Agent has
distributed to that Tranche A 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  Tranche A
                                                    Lenders.
                      (ii)   Tranche A Early Termination Fee:  Pro-Rata  to  the
                                                    Trance A 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.

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               (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).
               (g) ______  Except as  otherwise  provided in Section  14.9 below
(which relates to distributions on account of a Liquidation), the Agent promptly
shall distribute to the Tranche B Lender, as provided in this Section,  payments
made by the Borrowers on account of the Tranche B Obligations to the extent such
payments are actually received and collected by the Agent, or are made available
to the Agent. The Agent shall distribute to the Tranche B Lender the payments on
account of  principal  of,  interest  on,  and fees in respect of the  Tranche B
Obligations as received and collected by the Agent from the Borrowers or as made
available by the Agent as the proceeds of advances under the Revolving Credit.

ARTICLE XIV- ACCELERATION AND LIQUIDATION:
        14.1   Acceleration Notices.
               --------------------
               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 Notice by the Tranche B Lender.
               -------------------------------------------
               The Tranche B Lender may give the Agent an Acceleration Notice as
follows:

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               (a) ______ At any time  following  the  occurrence of an Event of
Default  which  occurs  after  payment  of all  Tranche  A  Liabilities  and the
obligation  of the Tranche A Lenders to make  Revolving  Credit  Loans and other
financial accommodations hereunder has been terminated.
               (b)      At any time  following any default under  Sections 10.10
or 10.11, with respect to any Borrower.
               (c)      At any time as permitted pursuant to Section 14.3 below.
        14.3   Mandatory Acceleration Right of Tranche B Lender.
               ------------------------------------------------
               (a) ______ Following the occurrence of any Borrower Default,  the
Tranche B Lender may  initiate  a  Standstill  Period by  written  notice to the
Agent.
               (b) ______ Upon the expiry of the relevant Standstill Period, the
Tranche B Lender may give the Agent an Acceleration Notice unless:
                      (i) ______ If the relevant Borrower Default is a Borrowing
        Base Default,  the sum of the Loan Account  (other than the  outstanding
        amount of the Tranche B Loans)  plus the then stated  amount of the L/Cs
        is restored to and remains less than or equal to the Borrowing  Base for
        at least  Ten (10)  consecutive  days  during  the  relevant  Standstill
        Period.
                      (ii) _____ If the relevant Borrower Default is a Tranche B
        Payment Default,  all then due Tranche B Debt Payments (other than those
        which would be due only if Tranche B Loans were  accelerated)  have been
        paid.
                      (iii) ____ If the relevant  Borrower  Default is a General
        Default,  such  General  Default has been duly waived by the Agent (with
        the consent of the requisite Lenders,  as provided in this Agreement) in
        accordance with this Agreement.
                      (iv)     Acceleration  has  been  stayed  by  judicial  or
        statutory process.

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               (c)  ______  In the  event  that  the  Tranche  B  Lender  is not
permitted to given an  Acceleration  Notice in accordance  with Section 14.3 (b)
above due to the occurrence of an event described in Sections 14.3(  b)(i)-(iv),
above,  then the relevant  Standstill  Period shall be reset for any  subsequent
Borrower Default which triggers the mandatory  acceleration right of the Tranche
B Lender under this Section.
        14.4   Acceleration.
               ------------
               Unless stayed by judicial or statutory  process,  the Agent shall
Accelerate the Liabilities  (including any Liabilities in respect of the Tranche
B Obligations)  under the Loan Documents  within a commercially  reasonable time
following:
               (a)      The Agent's receipt of an  Acceleration  Notice from the
SuperMajority Lenders, in compliance with Section 14.1.
               (b) ______ The Agent's receipt of an Acceleration Notice from the
Tranche B Lender, in compliance with Section 14.2.
        14.5   Initiation of  Liquidation.
               --------------------------
               Unless stayed by judicial or statutory process, a Liquidation may
(and upon the  direction  of the  Majority  Lenders,  shall) be initiated by the
Agent  within a  commercially  reasonable  time  following  Acceleration  of the
Liabilities  pursuant to Agent's receipt of an Acceleration Notice under Section
14.4.
        14.6   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 Tranche A Lenders participate.
                      (ii)     The Agent and the Tranche A  Lenders  shall  "net
        out"  each  Tranche A  Lender's  respective  contributions  towards  the

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        Revolving Credit Loans, so that each Tranche A Lender holds that Tranche
        A Lender's  Revolving  Credit  Commitment  Percentage  of the  Revolving
        Credit Loans.
               (b)  ______  Following  the  initiation  of a  Liquidation,  each
Tranche A Lender shall  contribute  towards any L/C  thereafter  honored and not
immediately reimbursed by the Borrowers that Tranche A Lender's Revolving Credit
Tranche A Commitment Percentage of such honoring.
        14.7   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

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management and disposition of any Post Foreclosure Asset.
        14.8   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 in accordance with the relative priorities
set forth in Section 14.9.
               (c) ______ Each Lender shall, on the written request of the Agent
and/or any Nominee, but not more frequently 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.
        14.9   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).

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               (c)      Third:      The Tranche A Lenders,  Tranche A  Pro-Rata,
                                    on  account  of  the  principal  balance  of
                                    Revolving Credit Loans.
               (d)      Fourth:     The Tranche A Lenders,  Tranche A  Pro-Rata,
                                    on  account  of  accrued  interest   on  the
                                    Revolving Credit Loans.
               (e)                  ______ Fifth:  ______ The Tranche A Lenders,
                                    Tranche A  Pro-Rata,  on account of all fees
                                    payable to the Tranche A Lenders,  including
                                    without limitation the Unused (Line) Fee and
                                    the Tranche A Early Termination Fee, and the
                                    Costs of Collection  incurred by the Tranche
                                    A Lenders.
               (f)      Sixth:      To the Tranche B Lender to the extent of the
                                    Tranche B Debt.
               (g)                  ______ Seventh: ____ To the Tranche B Lender
                                    to  the  extent  of  the  aggregate  of  all
                                    Tranche   B   Fees,    including,    without
                                    limitation,  the Tranche B Early Termination
                                    Fee and Costs of Collection  incurred by the
                                    Tranche B Lender.
               (h)      Eighth:     To any  other  Liabilities  under  the  Loan
                                   Documents.
ARTICLE XV - THE AGENT:
        15.1   Appointment of Agent.
               --------------------
               (a)      Each Lender  appoints and  designates FRF 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.

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                      (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.

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               (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 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.

                                       156
<PAGE>

               (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 been 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).
               (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

                                       157
<PAGE>

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.
               (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:

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<PAGE>

               (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:

                                       159
<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.

                                       160
<PAGE>

        15.9   Indemnification.
               ---------------
               Without  limiting the  liabilities of the Borrowers  under any of
the Loan Documents, each Lender shall indemnify 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 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  sixty (60)
days  (thirty (30) days after the payment of all Tranche A  Liabilities  and the
obligation  of the Tranche A Lenders to make  Revolving  Credit  Loans and other
financial  accommodations  has  terminated)  prior written notice thereof to the
Lenders  (including,  without  limitation,  the  Tranche B Lender)  and the Lead
Borrower. Upon receipt of any such notice of resignation,  the Majority Lenders,
with the  consent  of the  Tranche B Lender,  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
(7) 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 the requisite period after the giving of notice by the Agent,

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<PAGE>

then the resigning  Agent may appoint a successor  Agent,  which shall be either
the  Tranche  B  Lender  or a  financial  institution  with  an  office  in  the
Northeastern  United States  having a combined  capital and surplus in excess of
$500 Million ($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.  Upon the effectiveness of the resignation
of an Agent and the appointment of a successor Agent the (resigning) Agent will,
at the cost of the  Borrowers,  promptly  assign,  without  recourse  (except as
provided  herein) of record its rights as named  party  under all UCC  financing
statements, mortgages and other instruments of record to the successor Agent.
               (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.
               -----------------------------------

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<PAGE>

               (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
               ----------------------------      ------------------------
<TABLE>
                        <S>                      <C>

                        16.2                     Majority Lenders
                        16.3                     Super Majority Lenders
                        16.4                     Unanimous Consent
                        16.5                     Consent of SwingLine Lender
                        16.6                     Tranche B Lender Consent
                        16.7                     Agent's Consent
                        16.8                     Miscellaneous Actions
                        16.9                     Nonconsenting Tranche A Lenders
</TABLE>

               (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.

                                       163
<PAGE>

               (d) ______ The Tranche A Lenders  agree that,  subject to Section
16.3,  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
Tranche A Lenders and that each Tranche A Lender shall be bound thereby.
        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 sixty (60) consecutive  Business Days or more than twice in any twelve
(12) month  period;  provided  that the  Tranche B Lender  shall have  consented
thereto as required by Section 16.6.
               (b) ______ If an Event of Default (other than an Event of Default
arising under  Sections  10.10 or 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.l(a); or

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<PAGE>

                      (ii) Increase the rate of interest on the Revolving Credit
        Loans to the default  rate of interest as provided in, and to the extent
        permitted by, the Loan Agreement.
        16.4 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  Tranche A Lenders) or Section 17.1 (which deals with  assignments
and participations).
               (b) ______ Any  decrease in any  interest  rate or fee payable to
the Tranche A Lenders on account of the Revolving Credit Loans (but with respect
to any such decrease, the Tranche B Lender's consent shall not be required).
               (c)      Any change to 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

                                       165
<PAGE>

                      (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
        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 the 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 Tranche A Loan
Ceiling,  or subject to the time limits  included  in Sections  16.3(a) and 16.6
(which relates to the outside limit on the number of  consecutive  Business Days
that a Permissible Overloan may be outstanding);
               (j)      Any  amendment  to Section  13.4,  Section  14.9 or this
               Article XVI;
               (k)      Amendment of the  definitions  of the following terms:
                       "Majority Lenders"
                      "Permissible Overloan"

                                       166
<PAGE>

                      "Protective Advances"
                      "SuperMajority Lenders"
                      "Unanimous Consent"
               (l)      Any  continuation of the Revolving  Credit following the
occurrence  and during the  continuance  of an Event of Default  under  Sections
10.10 or 10.11; and

        16.5   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.
               16.6     Tranche B Lender  Consent.
                        -------------------------
                        Notwithstanding the foregoing provisions of this Article
XVI for so long as the  Tranche  B  Commitment  remains  in effect or any of the
Tranche  B Debt  remains  outstanding,  no  modification,  amendment  or  waiver
(including any  modification,  amendment or waiver of any related defined terms)
shall  without  the  Consent  of the  Tranche B Lender  (a) change the terms and
conditions  of the Tranche B Loan or the  Tranche B Fees,  or forgive all or any
portion  thereof,  (b) waive any  Borrowing  Base  Default  or Tranche B Payment
Default or change the Tranche B Lender's  acceleration  rights under Article XIV
or rights to the proceeds of any  Liquidation  under Article XIV, (c) change the
Tranche  B  Lender's  reporting  or  monitoring  rights,  or the  conditions  to
assignment of the Tranche B Loan,  (d) change the minimum  Availability  amounts
required to effect any  Permitted  Repurchase or Bond  Retirement  under Section
4.20(b), (e) permit a Permissible Overloan to be outstanding for more than sixty
(60)  consecutive  Business  Days or more than  twice in any  twelve  (12) month
period, (f) accelerate the scheduled dates of principal or interest payments, or
the maturity of the Revolving  Credit  Loans(other  than in  connection  with an
acceleration  of the Loans  following  an Event of  Default),  (g)  increase the
Eurodollar Margin or Base Margin applicable to the Revolving Credit Loans

                                       167
<PAGE>

(other  than an  increase  to the  default  rate in  accordance  with  the  Loan
Agreement)  by more than one percent (1%) per annum;  provided that in any event
any  increase  in such rate  shall  result in an equal  increase  in the rate of
interest applicable to the Tranche B Loan, or (h) increase ____ the fees payable
for the  account of the  Tranche A Lenders  from those in effect on the  Closing
Date,  or require  payment of any  amendment or similar  fee,  unless (in either
case) the Tranche B Lender is paid its Pro Rata portion thereof.
        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

                                       168
<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 Tranche A Lenders.
               -------------------------------
               (a) ______ In the event that a Tranche A Lender (in this  Section
16.9,  a  "NONCONSENTING  TRANCHE A 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 Tranche A 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  Tranche A Lender's Commitment on
fifteen (15) days written notice to the Agent and to the NonConsenting Tranche A
Lender.
               (b) ______ At the end of such  fifteen  (15) days,  the Tranche A
Lenders who have given such written  notice shall  Transfer the following to the
NonConsenting  Tranche A Lender, but only if the NonConsenting  Tranche A Lender
delivers  to the  Agent the  Revolving  Credit  Note  held by the  NonConsenting
Tranche A Lender:
                      (i)      Such  NonConsenting  Tranche A Lender's  Pro-Rata
        share of the principal and interest of the Revolving Credit Loans.

                                       169
<PAGE>

                      (ii)     All  fees due  to  the  NonConsenting  Tranche  A
        Lender to the date of such assignment.
                      (iii) ____ Any out-of-pocket  costs and expenses for which
        the NonConsenting Tranche A Lender is entitled to reimbursement from the
        Borrowers.
               (c) ______ In the event that the  NonConsenting  Tranche A Lender
fails  to  deliver  to  the  Agent  the  Revolving   Credit  Note  held  by  the
NonConsenting Tranche A Lender as provided in Section 16.9(b), then:
                      (i) ______ The amount  otherwise to be  Transferred to the
        NonConsenting  Tranche A Lender  shall be  Transferred  to the Agent and
        held  by  the  Agent,  without  interest,  to  be  turned  over  to  the
        NonConsenting  Tranche A Lender upon  delivery of the  Revolving  Credit
        Note held by that NonConsenting Tranche A Lender;
                      (ii)     The    Revolving  Credit   Note   held   by   the
        NonConsenting Tranche A Lender shall have no force or effect whatsoever;
                      (iii)    The NonConsenting Tranche A Lender shall cease to
        be a "Lender"; and
                      (iv) _____ The Tranche A 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
        Tranche A Lender as "Tranche A Lender".
               (d) ______ In the event  that more than one (1)  Tranche A Lender
wishes to require such assignment,  the NonConsenting Tranche A Lender's Tranche
A Commitment  shall be divided  amongst such Tranche A Lenders,  Pro-Rata  based
upon their respective  Tranche A Commitments,  with the Agent  coordinating such
transaction.

                                       170
<PAGE>

               (e) ______  The Agent  shall  coordinate  the  retirement  of the
Revolving  Credit  Note  held by the  NonConsenting  Tranche  A  Lender  and the
issuance of Revolving  Credit Notes to those Tranche A Lenders which  "take-out"
such NonConsenting Tranche A 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 by
        Lenders.
               --------------------------------------
               (a) ______ Except as provided  herein,  each Tranche A Lender (in
this Section  17.1,  an  "ASSIGNING  LENDER") may assign to one or more Eligible
Tranche A Assignees  (in this  Section  17.1,  an  "ASSIGNEE  LENDER")  all or a
portion of such Tranche A Lender's interests,  rights and obligations under this
Agreement  and the other  Loan  Documents  (including  all or a  portion  of its
Tranche A 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
        in any Assignee  Lender's  having a Tranche A Dollar  Commitment of less
        than the "minimum hold" amount specified in Section 17.l(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.

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<PAGE>

                      (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 Tranche A Dollar Commitment (if not an assignment
        of all of the Assigning Lender's  Commitment) shall not be less than $10
        Million ($10,000,000.00).
               (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 (a "Tranche
A ASSIGNMENT AND ACCEPTANCE"):
               (c) ______ The Assigning Lender shall deliver to the Agent,  with
such Tranche A 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)      Shall  have  the  rights  of  a  Tranche A
        Lender hereunder,  to the extent of the Tranche A Commitment assigned by
        such Assignment and Acceptance.

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<PAGE>

               (ii)  _____  The  Assigning  Lender  shall be  released  from the
Assigning  Lender's   obligations  under  this  Agreement  and  the  other  Loan
Documents,  with the Assignee Lender being released to the extent of the Tranche
A 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 and Tranche B 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.
               (h) ______  Unless an Event of  Default  has  occurred  (in which
event,  no consent of the Lead Borrower is  required),  the Tranche B Commitment
and  Tranche  B Loan  may be  assigned  in  whole  or in part at any time by the
Tranche B

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<PAGE>

Lender to any  Eligible  Tranche B Assignee  with 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
seven (7) days after the Agent shall have given the Lead Borrower notice of such
proposed  assignment.  In addition,  the Agent's prior  written  consent to such
assignment shall be required,  not to be unreasonably  withheld.  The parties to
such  assignment  shall  execute and  deliver to the Agent,  an  Assignment  and
Acceptance substantially in the form of Exhibit 17.2 annexed hereto. The Tranche
B  Assigning  Lender  shall  deliver  to the  Agent  with  such  Assignment  and
Acceptance the Tranche B Note held by such Tranche B Lender. Upon written notice
to the Lead  Borrower  from time to time  given by the  Agent of any  assignment
under this Section 17.2, the Lead Borrower shall execute one or more replacement
Tranche B Notes,  on behalf of itself and the other  Borrowers  reflecting  such
assignment,  and shall  deliver  such  replacement  Tranche B Notes to the Agent
(which  promptly  thereafter  shall cancel and deliver to the Lead  Borrower the
Tranche B Notes so replaced),  provided,  however, that in the event a Tranche B
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  obtaining  a  replacement  Tranche  B  Note,  may  issue  one or  more
certificates confirming the Tranche B Loans. Such change shall be effective from
the effective  date  specified in such  Assignment and Acceptance and any person
added as a Tranche B Lender shall have the rights and  privileges of a Tranche B
Lender  hereunder  thereafter  as if such  Person had been a  signatory  to this
Agreement  and any  other  Loan  Agreement  to which  the  Tranche B Lender is a
signatory  and any Person  removed  as a Tranche B Lender  shall  thereafter  be
relieved of any obligations or  responsibilities of a Tranche B Lender hereunder
and thereunder.

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<PAGE>

        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.
        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 ss.4 of the Federal Reserve Act(12 U.S.C. ss.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  (Unused)  Fee,  Annual  Facility  Fee,
Collateral  Monitoring Fee,  Tranche A Early  Termination  Fee,  Tranche B Early
Termination  Fee and any other fees and charges;  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

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<PAGE>

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  (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

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<PAGE>

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.
               (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

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<PAGE>

(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):

        Article                            Relates To
        -------                            ----------

        13: _________________              Revolving Credit Fundings
                                           and Distributions
        15  (other than 15.10 with respect The Agent to required  notices to and
            consents of Lead Borrower):

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

        19.5.  Power of  Attorney.
               ------------------
               In  connection  with all  powers  of  attorney  included  in this
Agreement,  each 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

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<PAGE>

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
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 and  Tranche B Lender 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 and  Tranche B
Lender 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  reasonable   attorneys'  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

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<PAGE>

"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.
        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.
               -----------------------

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<PAGE>

               (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.
               (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.

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<PAGE>

        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.
        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,

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<PAGE>

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).

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<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 word "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.

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<PAGE>

        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.
               (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

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<PAGE>

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
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

                                       186
<PAGE>

        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.
        19.17  Transitional Arrangements.
               -------------------------
               This Agreement,  upon the  satisfaction of each of the conditions
set forth in Article  III,  shall  amend,  replace  and  supercede  the Loan and
Security  Agreement,  dated  November  30, 1999 as amended (the  "Original  Loan
Agreement")  among FRF, the Tranche A Lenders parties thereto and the Borrowers,
provided  that  each of the  Revolving  Loans  and L/Cs  outstanding  under  the
Original  Loan  Agreement  shall  become  Revolving  Loans and L/Cs  under  this
Agreement  and all  interest,  fees and charges  payable under the Original Loan
Agreement  shall  continue  in effect  and be  payable  as  provided  under this
Agreement subject to any change or modification thereto that is provided in this
Agreement. The Borrowers, Agent and Lenders all agree that all Loan Documents in
effect with respect to the Original  Loan  Agreement  (with the exception of the
Notes which are to be reissued in connection with this Agreement) shall continue
in full force and effect with such amendments thereto as may be entered into in

                                       187
<PAGE>

connection with this Agreement,  shall be deemed to be Loan Documents  hereunder
and shall be deemed to be amended  pursuant hereto to provide that any reference
therein to the Original Loan Agreement shall be deemed to be to this Agreement.


                  [Remainder of Page Intentionally Left Blank]


                                       188
<PAGE>




                                      LECHTERS, INC.
                                      ("Lead Borrower")

                                       By
                                      Print Name:
                                     Title:


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

                                       By
                                      Print Name:
                                     Title:


                                      FLEET RETAIL FINANCE INC.
                                    ("Agent")

                                       By
                                      Print Name:
                                     Title:


                                      CONGRESS FINANCIAL CORPORATION
                                      (a "Tranche A Lender")

                                       By
                                      Print Name:
                                     Title:


                                      HELLER FINANCIAL, INC.
                                      (a "Tranche A Lender")

                                       By
                                      Print Name:
                                     Title:

                                       189
<PAGE>


                                      LASALLE BUSINESS CREDIT, INC.
                                      -----------------------------
                                      (a "Tranche A Lender")


                                       By
                                      Print Name:
                                     Title:

                                      FLEET RETAIL FINANCE INC.
                                      -------------------------
                                      (a "Tranche A Lender")

                                       By
                                      Print Name:
                                     Title:


                                      BACK BAY CAPITAL FUNDING, LLC
                                      ("Tranche B Lender")

                                       By
                                      Print Name:
                                     Title:





                                       190
<PAGE>



                                    EXHIBIT A

                                    Borrowers


        Lechters Alabama, Inc.
        Lechters Arizona, Inc.
        Lechters Arkansas, Inc.
        Lechters California, Inc.
        Lechters Colorado, Inc.
        Lechters Connecticut, Inc.
        Lechters Delaware, Inc.
        Lechters Florida, Inc.
        Lechters Georgia, Inc.
        Lechters Idaho, Inc.
        Lechters Illinois, Inc.
        Lechters Indiana, Inc.
        Lechters Iowa, Inc.
        Lechters Kansas, Inc.
        Lechters Kentucky, Inc.
        Lechters Louisiana, Inc.
        Lechters Maine, Inc.
        Lechters Baltimore, Inc.
        Lechters Holyoke, Inc.
        Lechters Michigan, Inc.
        Lechters Minnesota, Inc.

                                       191
<PAGE>

        Lechters Mississippi, Inc.
        Lechters Missouri, Inc.
        Lechters Nebraska, Inc.
        Lechters Nevada, Inc.
        Lechters New Hampshire, Inc.
        Lechters New Jersey, Inc.
        Lechters New Mexico, Inc.
        Lechters New York, Inc.
        Lechters N.Y.C., Inc.
        Lechters North Carolina, Inc.
        Lechters Ohio, Inc.
        Lechters Oklahoma, Inc.
        Lechters Oregon, Inc.
        Lechters Pennsylvania, Inc.
        Lechters Rhode Island, Inc.
        Lechters South Carolina, Inc.
        Lechters Tennessee, Inc.
        Lechters Texas, Inc.
        Lechters Utah, Inc.
        Lechters Vermont, Inc.
        Lechters Springfield, Inc.
        Lechters Washington, Inc.
        Lechters West Virginia, Inc.

                                       192
<PAGE>

        Lechters Wisconsin, Inc.
        Lechters M Street, Inc.
        Lechters.com, Inc.




                                       193
<PAGE>




                                   SCHEDULE B

                   SCHEDULE OF TRANCHE A LENDERS' COMMITMENTS
<TABLE>

------------------------------ ------------- -----------------------------------
TRANCHE A LENDER                 TYPE OF      DOLLAR               COMMITMENT

                                 LOAN         COMMITMENT           PERCENTAGE
------------------------------ -------------  ------------------ ---------------
------------------------------ -------------  ------------------ ---------------
<S>                              <C>          <C>                  <C>
Fleet Retail Finance Inc.        Revolving    $50,000,000.00       41.6666%
                                 Credit
------------------------------ -------------  ------------------ ---------------
------------------------------ -------------  ------------------ ---------------
Heller Financial, Inc.           Revolving    $27,500,000.00       22.91666%
                                 Credit
------------------------------ -------------  ------------------ ---------------
------------------------------ -------------  ------------------ ---------------
Congress Financial Corporation   Revolving    $27,500,000.00       22.91666%
                                 Credit
------------------------------ -------------  ------------------ ---------------
------------------------------ -------------  ------------------ ---------------

------------------------------ -------------  ------------------ ---------------
------------------------------ -------------  ------------------ ---------------
LaSalle Business Credit, Inc.    Revolving    $15,000,000.00       12.50000%
                                 Credit
------------------------------ -------------  ------------------ ---------------
------------------------------ -------------  ------------------ ---------------
        TOTAL COMMITMENTS                     $120,000,000         100%
------------------------------ -------------  ------------------ ---------------
</TABLE>





                    SCHEDULE OF TRANCHE B LENDER'S COMMITMENT
<TABLE>

-------------------------------    ------------     ------------     -----------
<S>                                <C>              <C>               <C>
TRANCHE B LENDER                   TYPE OF          DOLLAR            COMMITMENT
                                   LOAN             COMMITMENT        PERCENTAGE
-------------------------------    ------------     ------------      ----------
-------------------------------    ------------     ------------      ----------
Back Bay Capital Funding LLC       Tranche B        $10,000,000       100%
-------------------------------    ------------     ------------      ----------
</TABLE>



                                       194
<PAGE>