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

                                    FORM 10-Q

(Mark One)


(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES  EXCHANGE
    ACT OF 1934 For the quarterly period ended August 2, 1998
                                               -------------- 
                                       or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
    ACT OF 1934 For the transition period from _______________to________________



                         Commission File Number: 1-9474

                            FORSTMANN & COMPANY, INC.
             -----------------------------------------------------
             (Exact name of registrant as specified in its charter)

               GEORGIA                                 58-1651326
    -------------------------------                 -------------------
    (State or other jurisdiction of                 (I.R.S. Employer
     incorporation or organization)                  Identification No.)

   1155 Avenue of the Americas, New York, New York         10036
   -----------------------------------------------       ---------
      (Address of principal executive offices)           (Zip Code)

   (Registrant's telephone number, including area code)     (212) 642-6900


Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days.  (X) Yes   ( ) No

Indicate  by check mark  whether  the  registrant  has filed all  documents  and
reports  required  to be  filed by  Section  12,  13 or 15(d) of the  Securities
Exchange Act of 1934 subsequent to the  distribution of securities  under a plan
confirmed by a court. (X) Yes     ( ) No

As of September 16, 1998 there was 4,387,190 shares of Common Stock outstanding.

Total number of pages: 266 pages.

<PAGE>


                  PART I -- FINANCIAL INFORMATION
                  Item 1.  Financial Statements

                            FORSTMANN & COMPANY, INC.
                 CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
                                   (unaudited)
<TABLE>

                                                Reorganized      Reorganized     Predecessor      Reorganized      Predecessor
                                                  Company          Company         Company          Company          Company
                                                 Thirteen       Period From      Period From      Thirty-Nine      Period From
                                                Weeks Ended     July 23, 1997    May 5, 1997      Weeks Ended       November 4,
                                                 August 2,      to August 3,     to July 22,       August 2,     1996 to July 22,
                                                   1998             1997            1997             1998             1997
                                                   ----             ----            ----             ----             ----
<S>                                           <C>              <C>             <C>              <C>              <C>          
     Net sales                                $  38,996,000    $   8,016,000   $  45,880,000    $ 117,638,000    $ 141,884,000

     Cost of goods sold                          37,021,000        5,853,000      41,893,000      104,444,000      123,128,000
                                               ------------     ------------    ------------     ------------     ------------

     Gross profit                                 1,975,000        2,163,000       3,987,000       13,194,000       18,756,000

     Selling, general
      and administrative
      expenses                                    3,167,000          419,000       3,594,000        9,933,000       11,575,000

     Provision for
       uncollectible accounts                        67,000           64,000        (177,000)         638,000          252,000

     Restructuring items                          1,254,000             --              --          1,566,000             --
                                               ------------     ------------    ------------     ------------     ------------

     Operating income (loss)                     (2,513,000)       1,680,000         570,000        1,057,000        6,929,000

     Interest expense                             1,764,000          216,000       1,646,000        4,915,000        4,958,000
                                               ------------     ------------    ------------     ------------     ------------

     Income (loss) before
       reorganization items,
       income taxes and
       extraordinary item                        (4,277,000)       1,464,000      (1,076,000)      (3,858,000)       1,971,000

     Reorganization items                            25,000             --        25,076,000           80,000       33,401,000
                                               ------------     ------------    ------------     ------------     ------------

     Income (loss) before
       income taxes and
       extraordinary item                        (4,302,000)       1,464,000     (26,152,000)      (3,938,000)     (31,430,000)

     Income taxes not
       payable in cash (benefit)                   (142,000)         571,000            --               --               --
                                               ------------     ------------    ------------     ------------     ------------

     Income (loss) before
       extraordinary item                        (4,160,000)         893,000     (26,152,000)      (3,938,000)     (31,430,000)

     Extraordinary item -
       gain on debt
       discharge                                       --               --        24,135,000             --         24,135,000
                                               ------------     ------------    ------------     ------------     ------------

     Net income (loss)                        $  (4,160,000)         893,000   $  (2,017,000)   $  (3,938,000)   $  (7,295,000)
                                               ============     ============    ============     ============     ============

                            (continued on next page)
</TABLE>
<PAGE>

                            FORSTMANN & COMPANY, INC.
           CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (continued)
                                   (unaudited)
<TABLE>
                                        Reorganized       Reorganized         Predecessor          Reorganized         Predecessor
                                          Company           Company             Company              Company             Company
                                         Thirteen         Period From         Period From          Thirty-Nine         Period From
                                        Weeks Ended      July 23, 1997        May 5, 1997          Weeks Ended         November 4,
                                         August 2,       to August 3,         to July 22,           August 2,       1996 to July 22,
                                           1998              1997                1997                 1998                1997
                                           ----              ----                ----                 ----                ----
<S>                                      <C>                                                        <C>       
Per share and share information:
      Loss per common
         share - basic and diluted       $    (.95)                                                 $    (.90)
                                         =========                                                  =========

      Weighted average common
         shares outstanding              4,386,390                                                  4,385,087
                                         =========                                                  =========

</TABLE>

See notes to financial statements.
<PAGE>

                            FORSTMANN & COMPANY, INC.
                      CONSOLIDATED CONDENSED BALANCE SHEETS
                      AUGUST 2, 1998 AND NOVEMBER 2 , 1997
                                   (unaudited)
<TABLE>
                                                                                             August 2,               November 2,
                                                                                               1998                     1997
                                                                                               ----                     ----
     ASSETS
<S>                                                                                    <C>                       <C>
     Current Assets:
       Cash                                                                              $     118,000            $     493,000
       Cash restricted for settlement of unpaid claims                                         565,000                  558,000
       Accounts receivable, net of allowance of
         $1,096,000 and $458,000                                                            46,220,000               42,005,000
       Inventories                                                                          48,272,000               43,210,000
       Current deferred tax assets                                                                --                       --
       Other current assets                                                                    160,000                  926,000
                                                                                         -------------            -------------

         Total current assets                                                               95,335,000               87,192,000

     Property, plant and equipment, net                                                     21,903,000               24,779,000
     Other assets                                                                            2,851,000                1,670,000
                                                                                         -------------            -------------
         Total                                                                           $ 120,089,000            $ 113,641,000
                                                                                         =============            =============

     LIABILITIES AND SHAREHOLDERS' EQUITY
     Current liabilities:
       Current maturities of long-term debt                                              $   5,892,000            $   5,756,000
       Accounts payable                                                                      3,901,000                3,335,000
       Accrued liabilities                                                                   6,851,000               11,371,000
                                                                                         -------------            -------------
         Total current liabilities                                                          16,644,000               20,462,000

     Long-term debt                                                                         56,726,000               42,548,000
     Deferred tax liabilities                                                                     --                       --
                                                                                         -------------            -------------

         Total liabilities                                                                  73,370,000               63,010,000

     Commitments and contingencies

     Shareholders' Equity:
     Preferred Stock, 1,000,000 shares authorized
        and nil outstanding                                                                       --                       --
     Common stock, $.01 par value, 35,000,000
         shares authorized, 4,386,390 and 4,384,436
         shares issued and outstanding                                                          43,864                   43,844
     Additional paid-in capital                                                             50,323,136               50,297,156
     Retained earnings (deficit) since July 23, 1997                                        (3,648,000)                 290,000
                                                                                         -------------            -------------
     Total shareholders' equity                                                             46,719,000               50,631,000
                                                                                         -------------            -------------
           Total                                                                         $ 120,089,000            $ 113,641,000
                                                                                         =============            =============
</TABLE>
See notes to financial statements.
<PAGE>
                            FORSTMANN & COMPANY, INC.
                 CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
                                   (unaudited)
<TABLE>

                                                                                              Reorganized          Predecessor
                                                                         Reorganized            Company              Company
                                                                           Company            Period From          Period From
                                                                         Thirty-Nine            July 23,            November 4,
                                                                         Weeks Ended            1997 to               1996 to
                                                                           August 2,            August 3,             July 22,
                                                                             1998                 1997                  1997
                                                                             ----                 ----                  ----
<S>                                                                     <C>                  <C>                  <C>          
     Net income (loss)                                                  $ (3,938,000)        $    893,000         $ (7,295,000)
                                                                        ------------         ------------         ------------
       Adjustments  to  reconcile  net  income
       (loss) to net cash used by  operating
       activities:
         Depreciation and amortization                                     4,081,000              150,000           10,600,000
         Write-off of deferred financing costs                                  --                   --                211,000
         Income taxes not payable in cash                                       --                571,000                 --
         Income taxes paid                                                   (29,000)                --               (108,000)
         Provision for uncollectible accounts                                638,000               64,000              252,000
         Increase (decrease) in market reserves                            2,650,000                 --             (6,362,000)
         Loss from disposal, abandonment
           and impairment of machinery
           and equipment and other assets                                    720,000                 --              3,305,000
         Gain associated with NY office lease
            surrender                                                       (987,000)                --                   --
         Adjustment of accounts
           to fair value                                                        --                   --             22,076,000
         Extraordinary gain on discharge of debt                                --                   --            (24,135,000)
         Changes in current assets
           and current liabilities:
             Accounts receivable                                          (4,603,000)          (3,321,000)         (17,592,000)
             Inventories                                                  (7,712,000)           1,491,000            9,047,000
             Other current assets                                            516,000              100,000             (996,000)
             Accounts payable                                                566,000           (1,868,000)           2,028,000
             Accrued liabilities                                          (2,364,000)             513,000              794,000
             Deferred income taxes                                            13,000                 --                   --
     Operating liabilities subject
           to compromise                                                        --                   --               (513,000)
                                                                        ------------         ------------         ------------

       Total adjustments                                                  (6,511,000)          (2,300,000)          (1,393,000)
                                                                        ------------         ------------         ------------

         Net cash used by
           operating activities                                          (10,449,000)          (1,407,000)          (8,688,000)
                                                                        ------------         ------------         ------------
</TABLE>
                                                    (continued on next page)
<PAGE>


                            FORSTMANN & COMPANY, INC.
           CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS(continued)
                                   (unaudited)
<TABLE>
                                                                                                Reorganized        Predecessor
                                                                              Reorganized         Company            Company
                                                                                Company         Period From        Period From
                                                                              Thirty-Nine         July 23,         November 4,
                                                                              Weeks Ended         1997 to            1996 to
                                                                               August 2,         August 3,           July 22,
                                                                                 1998              1997               1997
                                                                                 ----              ----               ----
<S>                                                                           <C>                  <C>              <C> 
    Cash flows provided (used) in investing activities:
       Capital expenditures                                                   (2,421,000)          (103,000)        (1,036,000)
       Investment in other assests, primarily
          computer information systems                                        (1,784,000)            (3,000)          (289,000)
       Net proceeds from disposal of
         property, plant and equipment                                             6,000               --            2,612,000
                                                                            ------------       ------------       ------------

         Net cash provided (used) in
           investing activities                                               (4,199,000)          (106,000)         1,287,000
                                                                            ------------       ------------       ------------

     Cash flows from financing activities:
       Net repayments under
         the DIP Facility                                                           --                 --          (16,017,000)
       Net borrowings under the
         Revolving Loan Facility                                              24,240,000          1,763,000         26,244,000
       Borrowings under the Term
         Loan Facility                                                              --                 --           31,450,000
       Repayment of Term Loan Facility                                        (7,736,000)              --                 --
       Repayment of Deferred Interest Rate Notes                              (1,571,000)              --                 --
       Borrowings under financing
         arrangements                                                               --                 --            1,691,000
       Repayment of CIT Equipment Facility
         and other financing arrangements                                       (619,000)            (1,000)        (6,368,000)
       Repayment of Senior Secured Notes                                            --                 --          (26,909,000)
       Deferred financing costs                                                  (34,000)              --           (2,006,000)
                                                                            ------------       ------------       ------------

         Net cash provided by
           financing activities                                               14,280,000          1,762,000          8,085,000
                                                                            ------------       ------------       ------------

     Net increase (decrease) in cash                                            (368,000)           249,000            684,000

     Cash and restricted cash at beginning of period                           1,051,000            732,000             48,000
                                                                            ------------       ------------       ------------

     Cash and restricted cash at end of period                              $    683,000       $    981,000       $    732,000
                                                                            ============       ============       ============
</TABLE>
See notes to financial statements.
<PAGE>
                            FORSTMANN & COMPANY, INC.
       CONSOLIDATED CONDENSED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
                 FOR THE THIRTY-NINE WEEKS ENDED AUGUST 2, 1998
                                   (unaudited)
<TABLE>

                                                                           Additional                                 Total
                                                         Common             Paid-In             Retained           Shareholders'
                                                         Stock              Capital        Earnings(Deficit)         Equity
                                                         -----              -------        ----------------          ------
<S>                                                <C>                 <C>                 <C>                  <C>         
     Balance, November 2, 1997                       $     43,844        $ 50,297,156        $    290,000         $ 50,631,000

     Net loss                                                --                  --            (3,938,000)          (3,938,000)

     Director shares awarded                                   20              25,980                --                 26,000
                                                     ------------        ------------        ------------         ------------

     Balance, August 2, 1998                         $     43,864        $ 50,323,136        $ (3,648,000)        $ 46,719,000
                                                     ============        ============        ============         ============

</TABLE>
See notes to financial statements.
<PAGE>
                            FORSTMANN & COMPANY, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 AUGUST 2, 1998
                                   (unaudited)

1.     Forstmann & Company, Inc. ("the Company") is a leading designer, marketer
       and  manufacturer of innovative,  high quality woolen,  worsted and other
       fabrics which are used  primarily in the  production  of  brand-name  and
       private label apparel for men and women, as well as specialty fabrics for
       use in  billiard  tables,  sports caps and school  uniforms.  The apparel
       industry  represents  the  majority of the  Company's  customers  for its
       fabrics.  Additionally,  through the  Company's  wholly owned  subsidiary
       Forstmann  Apparel,  Inc. (see Note 2 to these Financial  Statements) the
       Company  designs  and markets  women's  suits  primarily  under the "Oleg
       Cassini" label. The Company  contracts the manufacturing of women's suits
       through manufacturers based in the Caribbean and sources complete apparel
       packages internationally.  See Note 2 to these financial statements for a
       discussion of Forstmann Apparel, Inc. and it's purchase of certain assets
       of Arenzano  Trading  Company,  Inc.  and B&B  Corporation,  collectively
       ("Arenzano").

       As  described  in Note 1 to the  Financial  Statements  contained  in the
       Company's  Annual Report on Form 10-K for the fiscal year ended  November
       2, 1997 (the "1997 Form 10-K"),  on September 22, 1995, the Company filed
       a  petition  for  protection  under  Chapter  11  of  the  United  States
       Bankruptcy Code (the  "Bankruptcy  Code") with the U.S.  Bankruptcy Court
       for the  Southern  District of New York (the  "Bankruptcy  Filing").  The
       Company emerged from Bankruptcy pursuant to a Plan of Reorganization (the
       "Plan of Reorganization") on July 23, 1997 (the "Effective Date").

       As described in Note 2 to the Financial  Statements contained in the 1997
       Form 10-K, in accordance with the American  Institute of Certified Public
       Accountants' Statement of Position 90-7, "Financial Reporting by Entities
       in  Reorganization  Under the Bankruptcy Code" ("SOP 90-7"),  the Company
       established its reorganization value and adopted "fresh start" accounting
       as of July 22, 1997.

       Under the principles of "fresh start" accounting, the Company's total net
       assets were recorded at its established  reorganization  value, which was
       then  allocated to  identifiable  tangible and  intangible  assets on the
       basis of their  estimated  fair value.  In accordance  with "fresh start"
       accounting,  the difference between the assumed  reorganization value and
       the  aggregate  fair value of the  identifiable  tangible and  intangible
       assets  resulted in a reduction in the value assigned to property,  plant
       and  equipment.  In  addition,  the  Company's  accumulated  deficit  was
       eliminated.

       In connection  with the Plan of  Reorganization  and the  application  of
       "fresh start" accounting, the Company is required to report its financial
       results for the  thirteen and  thirty-nine  weeks ended August 3, 1997 in
       two  separate  periods in this Form 10-Q.  Accordingly,  the  reorganized
       Company's  consolidated condensed financial statements are not comparable
       to the Company's condensed financial statements for prior periods.
<PAGE>
       The following table describes the periods  presented in the  consolidated
       condensed financial statements and related notes thereto:

 Period                                Referred to as
-------------------------------------  -----------------------------------------
 Results for the Reorganized Company
  Thirteen Weeks Ended August 2, 1998  "1998 Third Quarter"

 Results for the Reorganized Company
  From July 23, 1997 to August 3, 1997 "Reorganized Company 1997 12-Day Period"

 Results for the Predecessor Company
  From May 5, 1997 to July 22, 1997    "Predecessor Company 1997 79-Day Period"

 Results for the Reorganized Company
  Thirty-Nine Weeks Ended
  August 2, 1998                       "1998 Nine-Month Period"

 Results for the Predecessor Company
  From November 4, 1996 to
  July 22, 1997                        "Predecessor Company 1997 261-Day Period"

 Combined Reorganized Company
  1997 12-Day Period and
  Predecessor Company 1997 79-Day
  Period (Results for the
  Thirteen Weeks Ended
  August 3, 1997)                      "1997 Third Quarter"

 Combined Reorganized Company
  1997 12-Day Period and
  Predecessor Company 1997
  261-Day Period (Results for
  the Thirty-Nine Weeks Ended
  August 3, 1997)                      "1997 Nine-Month Period"


       In the  opinion of  management,  all  adjustments  (consisting  of normal
       recurring   adjustments)  necessary  for  a  fair  presentation  of  such
       information have been made. These financial  statements should be read in
       conjunction with the financial  statements and related notes contained in
       the 1997 Form 10-K.  Certain  information  normally included in financial
       statements  and related  notes  prepared  in  accordance  with  generally
       accepted accounting  principles has been condensed or omitted. Due to the
       seasonal nature of the Company's business,  customer order patterns,  the
       effects of the consummation of the Plan of Reorganization and application
       of "fresh  start"  accounting,  and the  purchase of Arenzano  during the
       Company's 1998 Third Quarter, results for the periods described above are
       not necessarily indicative of the results for a full fiscal year.

2.     On May 11, 1998, the Company  announced that it had agreed to acquire the
       business and  substantially  all of the assets of Arenzano.  Arenzano had
       instituted voluntary bankruptcy  proceedings in April 1998. The Company's
       purchase was made pursuant to an order signed by United States Bankruptcy
       Judge Burton R. Lifland,  dated May 8, 1998, in the cases entitled, In re
       Arenzano Trading Company, Inc. and In re B&B Corporation,  Case Nos. 98 B
       42508 and 98 B 42520 (BRL). The transaction was completed on May 13, 1998
       at a  purchase  price  of  $2.0  million.  However,  the  Company,  as an
       unsecured  creditor of  Arenzano,  is expected to receive a  distribution
<PAGE>
       from the bankruptcy  estate in the approximate  amount of $275,000 out of
       the proceeds to the estate from the purchase.  The acquisition allows the
       Company to expand its fabrics  business  into the apparel  business.  The
       Company expects to benefit from  Arenzano's  expertise in contracting for
       the  manufacture of apparel in the  Caribbean,  as well as its ability in
       sourcing  complete  apparel  packages  internationally.  The  Company  is
       operating the new apparel venture as a wholly-owned  subsidiary under the
       name  Forstmann  Apparel,  Inc.  ("FAI").  The new venture is expected to
       provide an enhanced  outlet for the  Company's  fabrics  while  providing
       growth opportunities outside of the Company's core business.  The working
       capital and capital  expenditure  requirements of FAI for the next twelve
       months will be funded from borrowings  under the Revolving Loan Facility.
       The Company believes that availability  under its Revolving Loan Facility
       will be  adequate to fund the  working  capital  and capital  expenditure
       requirements  of the Company,  including FAI, for the next twelve months.
       Arenzano had sales of  approximately  $17 million  during its most recent
       fiscal year.

       The  acquisition  of Arenzano by the Company was  accounted for using the
       purchase  method of accounting.  The purchase price paid for Arenzano was
       assigned  $0.7 million to tangible  assets and $1.3 million to intangible
       assets.  The Company's  results of operations  for the 1998 Third Quarter
       and 1998 Nine-Month  Period include the results of operations for FAI for
       the period May 13, 1998 to August 2, 1998.

3.     On March 6, 1998,  the Company  announced  that, as part of its long-term
       strategy,  it will  discontinue the production of top dye worsted fabrics
       used to  manufacture  men's  suits and  government  uniforms  (the  "1998
       Restructuring")  after completing  orders for its fall season.  In fiscal
       year 1997, top dye worsteds  accounted for  approximately  $18 million in
       men's suiting fabric and $10 million in government  uniform fabric sales.
       This decision has resulted in the Company's previous overall workforce of
       approximately 2,500 people being reduced by approximately 730 people.

       Implementation  of the 1998  Restructuring  has  resulted  in the Company
       incurring  certain  costs,   including,   among  other  costs,   salaried
       severance,  special  one-time  hourly  "stay put"  bonuses and  equipment
       relocation costs. Additionally,  certain of the Company's inventories and
       machinery  and  equipment  have  been  impaired  or  rendered   obsolete.
       Accordingly,  during the 1998 Nine-Month  Period,  the Company recognized
       severance expense of approximately  $0.8 million,  accrued  approximately
       $0.4 million for stay put bonuses,  recognized  a loss on  impairment  of
       $0.7  million  relating  to  the  impairment  of  certain  machinery  and
       equipment,  and increased  inventory  market  reserves by $2.6 million in
       connection  with  the  1998  Restructuring.  Severance  expense,  expense
       associated  with the  stay put  bonuses  and the  loss on  impairment  of
       certain  machinery and equipment were recognized as  restructuring  items
       during the 1998 Nine-Month Period.  Inventory market reserves  associated
       with the 1998  Restructuring  were  included in cost of goods sold during
       the 1998 Nine-Month Period. Any additional impairment of inventories will
       be included in cost of goods sold in the periods in which the  impairment
       can be reasonably estimated. Any additional impairment in property, plant
       and equipment will be recognized as a  restructuring  item in the periods
       in which the impairment can be reasonably estimated. The Company incurred
       costs of  approximately  $0.1 million during the 1998  Nine-Month  Period
       related to the  relocation of certain  machinery and equipment  which was
       included in cost of goods sold  during the 1998  Nine-Month  Period.  Any
       additional  costs  incurred to relocate  certain  machinery and equipment
       will be charged to cost of goods sold in the periods  incurred.  See Note
<PAGE>
       11 to these Financial Statements for a description of restructuring items
       recognized during the 1998 Nine-Month Period.

       The Company and the landlord of its corporate and marketing  offices have
       entered into a lease surrender  agreement whereby the Company will vacate
       such premises on or before  January 1, 1999.  Pursuant to the  agreement,
       the Company  waived any and all  existing and future  claims  against the
       landlord  arising out of, or in connection  with the takeover  agreement,
       effective August 1, 1995,  whereby the landlord had previously  agreed to
       take  over  the  Company's  remaining  obligations  under  the  Company's
       previous lease. The Company waived the right to collect contributions due
       the Company from the landlord for leasehold improvements and related fees
       and expenses  the Company had  incurred.  The Company had fully  reserved
       such  claims  against  the  landlord  during  its fiscal  year  1997.  In
       connection with entering into the lease surrender agreement,  the Company
       has  written-down  property,  plant and equipment by  approximately  $1.1
       million associated with the future abandonment of leasehold  improvements
       and  furniture  and  fixtures,  wrote-down  the  estimated  deferred rent
       liability at January 1, 1999 by approximately $2.1 million,  accrued $0.5
       million for broker's  commission and accrued  approximately  $0.1 million
       for lease cancellation liability.  These items resulted in a $0.4 million
       gain  which  was  recorded  as  a  restructuring  item  during  the  1998
       Nine-Month  Period.  The Company  expects to enter a new  ten-year  lease
       during  September  1998 for new corporate and marketing  offices at a new
       location in New York,  New York pursuant to which the Company will reduce
       the amount of space it  occupies  and lower the  associated  annual  rent
       expense by approximately $0.5 million.  In connection with the new lease,
       the Company  expects to incur  approximately  $1.0  million in  build-out
       cost,  furniture  and  moving  related  costs.  Such costs will be funded
       through borrowings under the Company's Revolving Loan Facility.

4.     One of the Company's  customers  accounted for  approximately  18% of the
       Company's  revenues for the 1998 Nine-Month  Period and another  customer
       represented  approximately  8% of gross accounts  receivable at August 2,
       1998.  No other  customer  represented  more than 6% of revenues or 7% of
       gross accounts receivable.
<PAGE>
5.     Inventories  are stated at the lower of cost,  determined  principally by
       the LIFO method, or market and consist of (in thousands):

                                             August 2,      November 2,
                                               1998            1997
                                               ----            ----
          Raw materials and supplies         $ 11,093        $  8,303
          Work-in-process                      26,159          27,459
          Finished products                    15,304           8,169
          Less market reserves                 (4,284)           (721)
                                             --------        --------
          Total                                48,272          43,210
          Difference between LIFO
            carrying value and current
            replacement cost                      613            --
                                             --------        --------
          Current replacement cost           $ 48,885        $ 43,210
                                             ========        ========

       The  Company  increased  market  reserves by $2.6  million for  inventory
       related  to the  top dye  worsted  fabrics  product  line  which  will be
       discontinued  as part of the  1998  Restructuring  (see  Note 3 to  these
       Financial  Statements).  This  expense  was charged to cost of goods sold
       during the 1998 Nine-Month Period.

6. Other assets consist of (in thousands):

                                                 August 2,    November 2,
                                                   1998          1997
                                                   ----          ----
          Computer information systems,
            net of accumulated amortization
            of $30 and $0                          $  771       $   94
          Deferred financing costs, net of
            accumulated amortization of
            $585 and $164                           1,102        1,520
          Licensing and royalty agreements,
             net of accumulated amortization
             of $85 and $0                            796         --
          Other, net                                  182           56
                                                   ------       ------
          Total                                    $2,851       $1,670
                                                   ======       ======

<PAGE>
7. Accrued liabilities consist of (in thousands):

                                           August 2,     November 2,
                                             1998           1997
                                             ----           ----
          Salaries, wages and related
            payroll taxes                   $ 1,423       $   978
          Incentive compensation                273         2,082
          Vacation and holiday                  899         1,729
          Interest on long-term debt             78            62
          Medical insurance claims            1,304         1,327
          Professional fees                     140           355
          Environmental remediation             340           361
          Deferred rental and other
            lease obligations                    12         2,186
          Other                               2,382         2,291
                                            -------       -------
          Total                             $ 6,851       $11,371
                                            =======       =======

       The Company  reduced  its  deferred  rent  liability  by $2.1  million in
       connection  with of entering into the lease  surrender  agreement as more
       fully described in Note 3 to these Financial Statements.

8. Long-term debt consists of (in thousands):

                                                  August 2,      November 2,
                                                    1998            1997
                                                    ----            ----
          Revolving Loan Facility                 $ 37,629        $ 13,389
          Term Loan Facility                        22,591          30,327
          Deferred Interest Rate Notes                --             1,571
          Other note                                   422             603
          Capital lease obligations                  1,976           2,414
                                                  --------        --------
          Total debt                                62,618          48,304
          Current portion of long-term debt         (5,892)         (5,756)
                                                  --------        --------
          Total long-term debt                    $ 56,726        $ 42,548
                                                  ========        ========

       On July 23,  1997,  the  Company  entered  into  the  Loan  and  Security
       Agreement  with a syndicate of financial  institutions  led by BABC.  The
       Loan and  Security  Agreement  provides  for a  revolving  line of credit
       (including a $15.0 million letter of credit facility as amended), subject
       to a borrowing base formula,  of up to $85 million (the  "Revolving  Loan
       Facility") and term loans of approximately  $31.5 million (the "Term Loan
       Facility").

       At August 2, 1998,  the Company's  loan  availability  (as defined in the
       Loan and  Security  Agreement),  in excess of  outstanding  advances  and
       letters of credit,  was  approximately  $17.3  million.  Giving effect to
       certain  amendments to the Loan and Security  Agreement  discussed below,
       the Company's loan  availability  at August 2, 1998 would have been $13.6
       million,  a reduction of $3.7 million  (including  the required Term Loan
       Facility payment of $1.5 million and fees of $0.1 million associated with
       the amendment of the Loan and Security Agreement).
<PAGE>
       In accordance with section 4.5(c) of the Loan and Security  Agreement,  a
       Term Loan  Facility  payment equal to 50% of any Excess Cash Flow for any
       fiscal year must be made by April 30 following the end of the fiscal year
       in which such Excess  Cash Flow  arose.  Excess Cash Flow for fiscal year
       1997 was approximately  $2.7 million,  and on April 27, 1998, the Company
       repaid the Term Loan  Facility  by  approximately  $1.4  million  through
       borrowings under the Revolving Loan Facility.

       The  Company  and its  lenders  as of  March  24,  1998  entered  into an
       amendment  to the Loan and  Security  Agreement  modifying,  among  other
       things,  the  definition  of  earnings  before  interest,  income  taxes,
       depreciation,  amortization  and  reorganization  items  ("EBITDAR")  and
       Adjusted  Tangible Net Worth, and modifying  certain loan covenants so as
       to increase  permitted  capital  expenditures and lower the minimum fixed
       charge coverage ratio.  Such  modifications  were made in anticipation of
       the effects of the Company's 1998  Restructuring  as more fully described
       in  Note  3  to  these  Financial  Statements.  In  accordance  with  the
       amendment,  the Company  prepaid $3.0  million of the Term Loan  Facility
       through borrowings under the Revolving Loan Facility on April 29, 1998.

       The Company and its lenders as of September 14, 1998 further  amended and
       restated the Loan and  Security  Agreement  to  incorporate  FAI into the
       Credit Facility,  fund the on-going working capital needs of FAI, provide
       the  funding to the  Company to incur the  necessary  build out costs and
       relocation   expenses  and  establish  the  required   security   deposit
       associated  with the  surrender of the  Company's  existing  lease of its
       corporate and marketing  offices and the  relocation of such offices (see
       Note  3 to  these  Financial  Statements)  and  modify  certain  existing
       financial   covenants  to  incorporate  FAI  and  reflect  the  Company's
       financial  results to date as well as expected  results for all of fiscal
       year 1998 and fiscal year 1999.

       As  described  more  thoroughly  in  Note 8 to the  Financial  Statements
       contained in the 1997 Form 10-K,  on the  Effective  Date,  in accordance
       with the Plan of Reorganization, the Company issued subordinated floating
       rate notes (the  "Deferred  Interest  Rate  Notes") in respect of certain
       accrued but unpaid interest (approximately $1.6 million). On December 22,
       1997,  the Company  repaid the Deferred  Interest  Rate Notes and accrued
       interest  due  thereon  through   borrowings  under  the  Revolving  Loan
       Facility.

9.     The Company  adopted  Financial  Accounting  Standards  ("SFAS") No. 128,
       Earnings Per Share as required in the first  quarter of fiscal year 1998.
       SFAS128  replaces the presentation of "primary" (and when required "fully
       diluted") EPS with a presentation  of "basic" and "diluted" EPS. Net loss
       per share basic is  computed  based on net loss  divided by the  weighted
       average common shares outstanding.  If required,  on a diluted basis, net
       income  per share - diluted is  computed  by  dividing  net income by the
       weighted  average  common shares  outstanding  during the period plus the
       incremental  shares that would have been  outstanding  under stock option
       plans. Due to the net losses incurred by the Company, the Company did not
       have any dilutive  options for either the 1998 Third  Quarter or the 1998
       Nine-Month Period.  Computation of per share earnings for the predecessor
       company  for  all  periods   presented  in  the  Consolidated   Condensed
       Statements of Operations and the reorganized company period from July 23,
       1997 to August 3, 1997 has been omitted as such information is not deemed
       to be meaningful.
<PAGE>
10.    As  discussed  in Note 14 to the  Financial  Statements  in the 1997 Form
       10-K, the Company has accrued certain  estimated costs for  environmental
       matters.

       Dublin,   Georgia.  On  December  29,  1995,  the  Georgia  Environmental
       Protection  Division ("EPD") issued separate  administrative  orders (the
       "Administrative  Orders") to the Company and to J.P.  Stevens & Co., Inc.
       ("Stevens")  which  relate to three sites on the Georgia  Hazardous  Site
       Inventory - the "TCE site",  the "1,1-DCA site" and another site known as
       the  "Burn  Area"  - at  the  Company's  Dublin,  Georgia  facility.  The
       Administrative  Orders  required  the  Company  and  Stevens  to submit a
       compliance  status  report  ("CSR") for these  sites that would  include,
       among other things,  a description  of the release,  including its nature
       and extent,  and suspected or known  source,  the quantity of the release
       and the  date of the  release.  The CSR  would  also  have to  include  a
       determination of cleanup  standards  (called "risk reduction  standards")
       for the sites and a certification  that the sites were in compliance with
       those  standards;  alternatively,  the  party  submitting  the CSR  could
       acknowledge  that  the  site is not in  compliance  with  risk  reduction
       standards.  Pursuant to the  Administrative  Orders,  if a site is not in
       compliance with the risk reduction  standards,  then a Corrective  Action
       Plan (a "Corrective  Action Plan") for remediating the release would have
       to be submitted to EPD.

       Since both the Company and Stevens had been  required to perform the same
       work at all three of these  sites,  the  Company  and  Stevens  agreed to
       allocate  responsibilities  between  themselves  pursuant to an Agreement
       Concerning  Performance of Work ("Agreement") dated January 24, 1997. The
       Agreement  required  the Company to prepare and submit to EPD the CSR for
       the TCE and 1,1-DCA sites,  while requiring Stevens to prepare and submit
       to EPD a CSR for the Burn Area site. The Agreement does not commit either
       party to perform  corrective  action at these sites.  On January 27, 1998
       EPD  provided  comments to the CSR  previously  submitted  by Stevens and
       requested  clarification  of the Stevens  CSR.  By letter  dated March 5,
       1998,  Stevens submitted a "draft" response to EPD and by letter of April
       6, 1998, a final response. It is the Company's understanding that Stevens
       is waiting for a response to this letter from EPD.

       The  Company  submitted  a CSR  for  the TCE  and  1,1-DCA  sites,  which
       certified  compliance with risk reduction  standards for both sites.  EPD
       indicated that it did not agree to the certification  with respect to the
       TCE site. After extensive  discussions with EPD concerning the issue, the
       Company  submitted  a  Corrective  Action Plan for the TCE site by letter
       dated May 15, 1997. By letter dated  September 29, 1997, EPD responded to
       the  Corrective  Action  Plan with  notice  of  deficiency.  The  Company
       submitted a revised  Corrective  Action Plan ("CAP") on October 31, 1997.
       The revised CAP calls for continued  operation of the Company's  existing
       groundwater  recovery  system,  as  well  as one  additional  groundwater
       recovery  well and a  groundwater  collection  trench near the former dry
       cleaning  basement.  On July 28, 1998 EPD approved the Company's CAP. The
       Company has begun  installation  of the  recovery  well and design of the
       groundwater  collection  trench. In addition to the installation of these
       two  systems,  the CAP requires the  submission  of an Annual  Corrective
       Action Status Report to EPD.
<PAGE>
       Tifton, Georgia. In January 1997, the Company was notified by a potential
       buyer of the Company's Tifton facility that soil and groundwater  samples
       had been obtained from that  facility and that certain  contaminants  had
       been identified.  Subsequently, through sampling and testing performed by
       the  Company's  environmental  consultants,  the  Company  confirmed  the
       presence of  contaminants  in  groundwater  samples taken at the site. On
       February 28, 1997,  the Company  notified EPD of such  findings,  and the
       site was placed on the Georgia Hazardous Site Inventory.

       The Company subsequently  consummated its sale of the Tifton facility. As
       part of that  transaction,  the  Company,  the  Tift  County  Development
       Authority  as  purchaser  ("TCDA")  and Burlen  Corporation  as  operator
       ("Burlen")  entered  into an  Environmental  Cost  Sharing and  Indemnity
       Agreement ("Cost Sharing  Agreement").  Under the Cost Sharing Agreement,
       the   Company   retained    responsibility   for   remediating    certain
       contamination,  to the extent required by law, that  originated  prior to
       Burlen's  occupancy of the premises.  Likewise,  the Company  assumed the
       obligation to indemnify  TCDA and Burlen in regard to such  contamination
       to the  extent  that a claim is made by an  unaffiliated  third  party or
       governmental agency. In exchange, Burlen agreed to pay to the Company the
       lesser of (1)  $150,000  minus any  payments  already made to the Company
       (certain   expenses   had  already   been   shared)  to  respond  to  the
       contamination  or (2)  one-half  of the costs  incurred by the Company in
       response to such contamination.  EPD has not yet requested any additional
       response to conditions at this site.

       At August 2, 1998,  the Company had $0.3 million  accrued for costs to be
       incurred  in  connection  with  the  TCE,  1,1-DCA  and  Tifton  facility
       environmental  matters.  The Company,  subject to EPD's  response to J.P.
       Stevens  revised  CSR  and  compliance  status  certification  and  EPD's
       response to the Tifton site, believes the accrual for environmental costs
       at August 2, 1998 is adequate.

11.    Restructuring items related to the Company's 1998 Restructuring have been
       segregated  and  included  in normal  operations  during  the 1998  Third
       Quarter and 1998 Nine-Month Period and consist of (in thousands):
                                                           1998          1998
                                                          Third       Nine-Month
                                                         Quarter        Period
                                                         -------        ------
       Severance and "stay-put" bonus expense
          and related employee benefits                  $   205       $ 1,172
       Loss (gain) associated with N.Y. office
          lease surrender                                    283          (375)
       Professional fees                                      47            50
       Loss on impairment of machinery and equipment         719           719
                                                         -------       -------
       Total                                             $ 1,254       $ 1,566
                                                         =======       =======

       During the 1998 Third  Quarter,  certain of the  Company's  machinery and
       equipment was rendered impaired. The Company currently estimates that the
       fair value of such  equipment is $0.7 million  below its current net book
       value.  Accordingly,  the Company recognized a loss on impairment of $0.7
       million as a restructuring item during the 1998 Third Quarter.

       During  the  1998   Nine-Month   Period,   the  Company   recognized   as
       restructuring  items severance expense of approximately  $0.8 million and
       expense of approximately $0.4 million for stay put bonuses (see Note 3 to
       these Financial Statements).
<PAGE>
       In connection with entering into the lease surrender  agreement (see Note
       3 to these Financial Statements),  the Company wrote-down property, plant
       and equipment by  approximately  $1.1 million  associated with the future
       abandonment  of  leasehold   improvements  and  furniture  and  fixtures,
       wrote-down  the estimated  deferred rent  liability at January 1, 1999 by
       approximately $2.1 million,  accrued $0.5 million for broker's commission
       and accrued approximately $0.1 million for lease cancellation  liability.
       These  items  resulted  in a $0.4  million  gain which was  recorded as a
       restructuring item during the 1998 Nine-Month Period.

12.    In accordance with SOP 90-7,  professional  fees,  asset  impairments and
       reorganization  charges  directly  related to the  Bankruptcy  Filing and
       related  reorganization  proceedings  have been  segregated  from  normal
       operations  during the 1998 Third  Quarter and the 1997 Third Quarter and
       the 1998 Nine-Month  Period and the 1997 Nine-Month Period and consist of
       (in thousands):

                                                       1998             1997
                                                  Third Quarter    Third Quarter
                                                  -------------    -------------
          Professional fees                             $19          $ 1,273
          Impairment of assets                           --              327
          Expense incurred due to the rejection and              
             amendment of executory contracts            --              914
          Default interest expense and                           
             professional fees associated with the               
             Senior Secured Notes                        --              185
          Adjustment of accounts to fair value           --           22,076
          Other                                           6              301
                                                        ---           ------
          Total                                         $25          $25,076
                                                        ===          =======
                                                                

                                                       1998            1997
                                                    Nine-Month      Nine-Month
                                                      Period          Period
                                                      ------          ------
          Professional fees                             $45          $ 3,102
          Impairment of assets                           --            4,602
          Expense incurred due to the rejection and
             amendment of executory contracts            --            3,314
          Default interest expense and
             professional fees associated with the
             Senior Secured Notes                        --             (388)
          Adjustment of accounts to fair value                        22,076
          Other                                          35              695
                                                        ---          -------
          Total                                         $80          $33,401
                                                        ===          =======

         During the first  quarter of fiscal  1997,  the Company  accrued a $3.0
         million loss for certain  unerected  equipment at the Company's  Tifton
         facility  which was held for sale.  During  the  Company's  1997  Third
         Quarter,  such  equipment  was  sold  and a gain  of $0.1  million  was
         realized.
<PAGE>
         During  the  second  quarter  of fiscal  1997,  pre-petition  unsecured
         liabilities  were  increased by $3.3 million  associated  with contract
         rejection  damages  relating to the Company's  former  headquarters and
         marketing  office leases ($1.7 million),  the termination of a contract
         to purchase certain equipment ($0.9 million) and two rejected contracts
         relating to the former joint  venture with an Italian  fabric  designer
         ($0.7 million).  These charges were recognized as reorganization  items
         during the second  quarter of fiscal 1997.  Such charges were partially
         offset by the  recognition  of a $0.9 million net  receivable  from the
         Company's  current  landlord  related to its assumption of a portion of
         the  Company's   obligations  under  its  former   headquarters  lease.
         Additionally, the Company increased market reserves by $0.9 million for
         inventory related to the converting fabrics product line which had been
         discontinued as part of the product  rationalization  effort undertaken
         in fiscal year 1996.  Such reserve was necessary as a result of selling
         price  markdowns  anticipated  to  sell  off the  remaining  converting
         fabrics  inventory on hand. This expense was charged to  reorganization
         expense during the second quarter of fiscal 1997.

         During the 1997 Third  Quarter,  the  Company  fully  reserved  against
         amounts  receivable from its current  landlord of its  headquarters and
         marketing  offices lease relating to its assumption of a portion of the
         Company's  former  headquarters  lease  as well as the  remaining  work
         allowance receivable under its current lease. This charge was partially
         offset by a reduction in the deferred  rent  liability  account for its
         current lease due to the adjustment of the work  allowance  receivable.
         Expense of $0.9 million was charged to  reorganization  expense  during
         the 1997 Third Quarter as a result of these items. Also during the 1997
         Third  Quarter,  the Company  wrote off  approximately  $0.2 million of
         deferred  financing  costs  associated  with debt  agreements that were
         fully  paid  in  connection  with  the  consummation  of  the  Plan  of
         Reorganization.

         In  connection  with the  adoption  of  "fresh-start"  accounting,  the
         Company  revalued its  inventories  to fair market value as of July 22,
         1997. This revaluation  resulted in the inventory  carrying value being
         written up by $6.5 million.  Additionally,  the difference  between the
         assumed  reorganization  value and the fair  value of the  identifiable
         tangible and  intangible  assets  resulted in a write-down in the value
         assigned to property, plant and equipment of $28.6 million. These items
         resulted in a $22.1 million charge to  reorganization  items during the
         1997 Third Quarter.
<PAGE>
Item 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
         AND RESULTS OF OPERATIONS

Reference is made to Item 7 - "Management's Discussion and Analysis of Financial
Condition  and  Results  of  Operations"  contained  in the 1997 Form 10-K for a
discussion  of  the  Company's  financial  condition  as of  November  2,  1997,
including  a  discussion  of the  Company's  anticipated  liquidity  and working
capital requirements during its 1998 fiscal year.

Forward Looking Statements

Certain  matters  discussed  in this  Quarterly  Report under Item 2 are forward
looking  statements  which reflect the  Company's  current views with respect to
future events and financial  performance.  These forward-looking  statements are
subject to certain risks and  uncertainties  which could cause actual results to
differ  materially from  historical  results or those  anticipated.  Readers are
cautioned not to place undue reliance on these forward-looking statements, which
speak only as of their dates.  The Company  undertakes no obligation to publicly
update or revise  any  forward-looking  statements,  whether  as a result of new
information,  future  events or  otherwise.  The  following  factors could cause
actual  results  to  differ   materially  from   historical   results  or  those
anticipated:  demand for the  Company's  products,  competition,  the  Company's
production needs, wool market conditions, any unexpected financing requirements,
and changes in the general economic climate.

Recent Events

Acquisition

On May 11,  1998,  the  Company  announced  that it had  agreed to  acquire  the
business and  substantially  all of the assets of Arenzano,  a  manufacturer  of
women's suits primarily under the "Oleg Cassini" label.  Arenzano had instituted
voluntary bankruptcy  proceedings in April 1998. The Company's purchase was made
pursuant to an order signed by United States Bankruptcy Judge Burton R. Lifland,
dated May 8, 1998, in the cases entitled,  In re Arenzano Trading Company,  Inc.
and In re B&B  Corporation,  Case  Nos.  98 B 42508  and 98 B 42520  (BRL).  The
transaction  was completed on May 13, 1998 at a purchase  price of $2.0 million.
However,  the  Company,  as an unsecured  creditor of  Arenzano,  is expected to
receive a distribution from the bankruptcy  estate in the approximate  amount of
$275,000 out of the proceeds to the estate from the  purchase.  The  acquisition
allows the Company to expand its fabrics business into the apparel business. The
Company  expects to benefit from  Arenzano's  expertise in  contracting  for the
manufacture  of apparel in the  Caribbean,  as well as its  ability in  sourcing
complete  apparel  packages  internationally.  The Company is operating  the new
apparel venture as a wholly-owned  subsidiary under the name Forstmann  Apparel,
Inc. ("FAI").  The new venture is expected to provide an enhanced outlet for the
Company's fabrics while providing growth opportunities  outside of the Company's
core  business.  Arenzano  had sales of  approximately  $17 million for its most
recent fiscal year.

The working  capital and capital  expenditure  requirements  of FAI for the next
twelve months will be funded from borrowings  under the Revolving Loan Facility.
The Company believes that availability under its Revolving Loan Facility will be
adequate to fund the working capital and capital expenditure requirements of the
Company, including FAI, for the next twelve months.
<PAGE>
1998 Restructuring

On March 6, 1998, the Company announced that, as part of its long-term strategy,
it  will  discontinue  the  production  of  top  dye  worsted  fabrics  used  to
manufacture men's suits and government uniforms (the "1998 Restructuring") after
completing  orders for its fall  season.  In fiscal year 1997,  top dye worsteds
accounted for  approximately  $18 million in men's suiting  fabric sales and $10
million in government  uniform  fabric sales.  This decision has resulted in the
Company's previous overall workforce of approximately 2,500 people being reduced
by  approximately  730 people.  The top dye worsted fabrics  business has been a
relatively small part of the Company's overall business. However, the complexity
of manufacturing top dyes makes it extremely labor intensive and unprofitable at
its  current  level.  By  discontinuing  top dye  worsted  fabrics,  the Company
believes it can focus all of its resources on its strengths in men's and women's
woolen and worsted sportswear, coating and niche specialty markets.

Implementation  of the 1998  Restructuring has resulted in the Company incurring
certain  costs,  including,  among  other  costs,  salaried  severance,  special
one-time hourly "stay put" bonuses and equipment relocation costs. Additionally,
certain of the Company's  inventories  have been impaired or rendered  obsolete.
Accordingly, during the 1998 Nine-Month Period, the Company recognized severance
expense of approximately  $0.8 million,  accrued  approximately $0.4 million for
stay put bonuses,  recognized a loss on impairment  of $0.7 million  relating to
the  impairment of certain  machinery  and  equipment,  and increased  inventory
market  reserves  by $2.6  million in  connection  with the 1998  Restructuring.
Severance expense,  expense associated with the stay put bonuses and the loss on
impairment of certain  machinery and equipment were recognized as  restructuring
items during the 1998 Nine-Month  Period.  Inventory market reserves  associated
with the 1998  Restructuring were included in cost of goods sold during the 1998
Nine-Month Period. Any additional  impairment of inventories will be included in
cost of goods sold in the  periods  in which the  impairment  can be  reasonably
estimated.  Any additional  impairment in property,  plant and equipment will be
recognized as a restructuring item in the periods in which the impairment can be
reasonably  estimated.  The Company incurred costs of approximately $0.1 million
during the 1998 Nine-Month Period related to the relocation of certain machinery
and  equipment  which  was  included  in cost of  goods  sold  during  the  1998
Nine-Month  Period.  Any additional costs incurred to relocate certain machinery
and equipment will be charged to cost of goods sold in the periods incurred. See
Note 11 to these Financial  Statements for a description of restructuring  items
recognized during the 1998 Nine-Month Period.

Financial Condition and Liquidity

The Company's business is seasonal,  with the vast majority of orders for woolen
fabrics placed from December through April for apparel  manufacturers to produce
apparel  for retail sale during the fall and winter  months.  This  results in a
seasonal sales order and billing  pattern which  historically  generates  higher
sales  during the  Company's  second and third fiscal  quarters  compared to the
Company's first and fourth fiscal  quarters.  This sales pattern places seasonal
constraints on the Company's  manufacturing  operations which,  during the first
fiscal quarter, the Company has traditionally  lessened by manufacturing certain
components of inventory in advance of actual sales orders. Further, the industry
practice of providing  coating fabric  customers  with  favorable  billing terms
(referred to as "dating")  which permit  payment 60 (sixty) days from July 1 for
invoices billed in January through June encourages such coating fabric customers
to place  orders in advance of their  actual  need.  This enables the Company to
manufacture and bill certain coating fabric customers during the Company's first
fiscal quarter.  Accounts receivable at August 2, 1998 included $21.4 million of
accounts  receivable with dating terms, an increase of $3.3 million  compared to
<PAGE>
August 3, 1997. The Company expects FAI's sales to be somewhat counter seasonal,
with the majority of FAI's sales  occurring  during its fourth and second fiscal
quarter. The majority of FAI's sales are on net sixty day terms or less.

During  the 1998  Nine-Month  Period,  operations  used  $10.4  million of cash,
whereas $10.1 million was used by operations during the 1997 Nine-Month  Period.
Investing  activities  used $4.2 million in the 1998  Nine-Month  Period whereas
investing  activities provided $1.2 million in the 1997 Nine-Month Period due to
proceeds  received  during the Company's 1997 Third Quarter from the sale of the
Company's Tifton facility and certain equipment located at the site. The Company
expects spending for capital expenditures,  principally plant and equipment,  in
fiscal  year  1998 to be  greater  than  fiscal  year  1997 due to  renewals  or
betterments   of  plant  and  equipment  and   compliance   with   environmental
regulations.  As a result of foregoing, during the 1998 Nine-Month Period, $14.3
million was provided by financing  activities whereas during the 1997 Nine-Month
Period $9.8 million was provided by financing activities.

The Company  believes that cash generated from  operations and borrowings  under
the Revolving  Loan Facility will be sufficient to fund its working  capital and
capital  expenditure  requirements,  including the  requirements of FAI, for the
next twelve months.  However,  expected cash flows from operations are dependent
upon  achieving  sales  expectations  during the next  twelve  months  which are
influenced by market  conditions,  including  apparel sales at retail,  that are
beyond the control of the Company.  Due to the seasonal  nature of the Company's
core woolen and worsted business,  the Company's  borrowings under its Revolving
Loan  Facility  will tend to  increase  during the first  three  quarters of the
Company's  fiscal year until the fourth quarter,  when, at year-end,  borrowings
tend to be the  lowest.  However,  as a result  of the 1998  Restructuring,  the
acquisition  of  substantially  all of the assets of Arenzano and the  Company's
operating results,  the Company expects borrowings at the end of the fiscal year
1998 to be somewhat higher than borrowings at the end of fiscal year 1997.

The fabrics sales order backlog at August 30, 1998 was $42.0 million, whereas at
the comparable time in fiscal year 1997 it was $47.5 million.  The fabrics sales
order backlog at August 30, 1998 reflects a weaker order position in all product
lines,  except specialty and womenswear  fabrics which increased by $2.7 million
and  $0.2  million,  respectively,  when  compared  to a  year  earlier.  Of the
approximate  $5.6 million  decline in the fabrics  sales order backlog at August
30, 1998 as compared to a year earlier,  approximately  $6.0 million  related to
menswear fabrics and government  fabrics,  due to the Company's decision to exit
men's suits and government business (approximately $4.4 million of the decline),
and to an over  capacity  in global  worsted  manufacturing  as well as  fashion
trends.  The order position for coating  fabrics at August 30, 1998 has declined
by $2.1 million over the comparable time a year earlier. The decrease in coating
fabric sales order  backlog is due, in part, to an  unseasonably  warm last fall
and winter season which resulted in lower than anticipated women's coats selling
at retail.

The  Company  purchases  a  significant  amount of its raw wool  inventory  from
Australia.  Since all of the Company's forward purchase commitments for raw wool
are  denominated  in U.S.  dollars,  there is no  actual  currency  exposure  on
outstanding  contracts.  However,  future changes in the relative exchange rates
between  the United  States and  Australian  dollars can  materially  affect the
Company's results of operations for financial reporting purposes.  Based on wool
costs  incurred  during the 1998  Nine-Month  Period and the  Company's  forward
purchase commitments for wool delivery in the Company's fourth quarter of fiscal
year 1998, the Company expects wool costs to be approximately 1% lower in fiscal
year 1998 as compared to fiscal year 1997. After placing orders for the majority
of the Company's wool top needs,  the Company  decided to exit the men's suiting
<PAGE>
and  government   worsted  top  dyed  markets  in  conjunction   with  the  1998
Restructuring.  Further,  during fiscal year 1998,  the financial  crisis in the
Asian markets reduced their demand for Australian  supplied wool, which resulted
in a decline in the market price for Australian  wool and lowered the Australian
dollar  against the United States  dollar.  These factors may cause the carrying
value of certain of the Company's  worsted top  inventories or open contracts to
purchase worsted top to be valued higher than current market. This may result in
the Company  recognizing  a "mark to market"  loss during its fourth  quarter of
fiscal year 1998.

Results of Operations

The  discussion  below  compares  the results of  operations  for the 1998 Third
Quarter to the 1997 Third  Quarter  and the 1998  Nine-Month  Period to the 1997
Nine-Month Period. Except as indicated in the following  discussion,  management
believes that the impact of the Plan of  Reorganization  and the  application of
"fresh start" accounting did not significantly  affect the results of operations
for the 1998 Third  Quarter  and the 1997 Third  Quarter or the 1998  Nine-Month
Period and the 1997 Nine-Month  Period.  Further,  management  believes that the
operating  results  of the  Reorganized  Company  1997  12-Day  Period  and  the
Predecessor  Company  1997  79-Day  Period  is  indicative  of  the  results  of
operations for the 1997 Third Quarter  (thirteen  weeks ended August 3,1997) and
that  the  results  for the  Reorganized  Company  1997  12-Day  Period  and the
Predecessor  Company  1997  261-Day  Period  is  indicative  of the  results  of
operations for the 1997  Nine-Month  Period  (thirty-nine  weeks ended August 3,
1997).  Due to the seasonal  nature of the Company's  business,  customer  order
patterns, the effects of the consummation of the Plan of Reorganization, and the
purchase of Arenzano  during the Company's 1998 Third  Quarter,  results for the
periods defined above are not  necessarily  indicative of the results for a full
fiscal year.

The  application  of "fresh  start"  accounting  resulted in property  plant and
equipment  being  written  down  by  $28.6  million  which  will  result  in  an
approximate  $6.4 million  reduction in annual  depreciation  expense.  Further,
annual amortization expense will be approximately $0.3 million lower as a result
of the  Company  writing  off  certain  intangible  assets  (primarily  deferred
software  development  costs).  The write off of the intangible  assets occurred
during the 1997 Third  Quarter and was charged to  operations  ($0.9  million to
cost of goods  sold and $0.3  million to  selling,  general  and  administrative
expenses).  The Company  also wrote off  certain  other  assets and  liabilities
associated  with  the  Company's   headquarters   lease  which  was  charged  to
reorganization items during the 1997 Third Quarter ($0.9 million).  In addition,
as described in Note 12 contained in this 1998 Third  Quarter Form 10-Q,  during
the 1997 Third Quarter the Company incurred  additional deferred financing costs
in  connection  with  entering  into the Loan and Security  Agreement  and other
financing arrangements and wrote off certain deferred financing costs associated
with the debt  restructuring.  The write off of deferred  financing  costs ($0.2
million) was charged to reorganization items during the 1997 Third Quarter.


The Thirty-Nine Weeks Ended August 2, 1998 ("1998  Nine-Month  Period") compared
to the Thirty-Nine Weeks Ended August 3, 1997 ("1997 Nine-Month Period")

The  Company's  business is  seasonal.  Accordingly,  results for these  interim
periods are not  indicative of results for a full fiscal year. Net sales for the
1998 Nine-Month  Period were $117.6  million,  a decrease of 21.5% from the 1997
Nine-Month  Period.  Total  yards of fabric sold  decreased  24.4% from the 1997
Nine-Month Period to the 1998 Nine-Month Period.  However,  the average per yard
selling  price  increased to $7.57 per yard from $7.40 per yard due to shifts in
<PAGE>
product mix.  Sales  declined in all major  product  lines except for  specialty
fabric sales which increased by $2.7 million during the 1998  Nine-Month  Period
when  compared to the 1997  Nine-Month  Period.  In addition,  the Company added
apparel sales of $1.6 million during the 1998  Nine-Month  Period as a result of
the  acquisition  of  the  Arenzano  business  (see  Note 2 to  these  Financial
Statements).  Womenswear fabric sales were approximately  $18.4 million lower in
the 1998 Nine-Month Period as compared to the 1997 Nine-Month  Period.  Based on
the current backlog of sales orders for womenswear  fabric sales,  market trends
and increased  competitive  pressures,  the Company expects  overall  womenswear
fabric sales to be lower in fiscal year 1998 than in fiscal year 1997.  Menswear
fabric sales were $5.8 million lower in the 1998  Nine-Month  Period as compared
to the 1997 Nine-Month  Period.  The decline in menswear fabric sales is due, in
part,  to the  Company's  decision made in March 1998 to exit the men's top dyed
suit business. Overall, the Company expects menswear fabric sales to be lower in
fiscal year 1998 as compared to fiscal  year 1997.  Product  lines  discontinued
during fiscal year 1996 (converting,  career uniform and Carpini) realized sales
of approximately  $3.2 million in the 1997 Nine-Month Period as compared to $0.4
million in the 1998 Nine-Month  Period.  Coating fabric sales were approximately
$4.1  million  lower in the  1998  Nine-Month  Period  as  compared  to the 1997
Nine-Month  Period.  The decrease in coating fabric sales is due, in part, to an
unseasonably  warm last fall and  winter  season  which  resulted  in lower than
anticipated women's coats selling at retail. This has resulted in delayed fabric
shipments  and order  assortment  by the  Company's  coating  fabric  customers.
Government  uniform  fabric  sales  decreased  by $4.3  million  during the 1998
Nine-Month Period as compared to the 1997 Nine-Month Period due to the Company's
decision in March 1998 to exit this line of business.

Based on these trends (increased competitive pressures in the woolen and worsted
markets,  the  decline  in backlog  of  orders,  and the effect of  discontinued
product lines) the Company expects sales revenue for fabric sales in fiscal year
1998 to be  approximately  25% lower  than in fiscal  year  1997,  exclusive  of
apparel sales by FAI in the Company's  1998 Third Quarter and the fourth quarter
of fiscal year 1998. Accordingly,  on March 6, 1998, the Company announced that,
as part of its long-term strategy, it will discontinue the production of top dye
worsted  fabrics used to manufacture  men's suits and government  uniforms after
completing  orders for its fall season.  In fiscal year 1997,  top dyed worsteds
accounted for  approximately  $18 million in men's suiting  fabric sales and $10
million  in  government  uniform  fabric  sales..  The top dye  worsted  fabrics
business has been a relatively  small part of the  Company's  overall  business.
However,  the  complexity  of  manufacturing  top dyes makes it extremely  labor
intensive  and  unprofitable  at its current  level.  By  discontinuing  top dye
worsted  fabrics,  the Company believes it can focus all of its resources on its
strengths in men's and women's woolen and worsted sportswear,  coating and niche
specialty  markets.  Further,  in addition to exiting the production of top-dyed
worsted fabrics, the Company is consolidating certain  manufacturing  operations
and implementing other plans designed to align its costs during fiscal year 1998
with the decline in sales anticipated in fiscal year 1998. However, there can be
no assurance  as to the level of sales that will  actually be attained in fiscal
year 1998, as sales are dependent on market  conditions and other factors beyond
the  Company's  control,  nor can there be  assurance  that the  Company's  cost
reduction will be implemented successfully.

Cost of goods sold  decreased  $24.5 million to $104.4  million  during the 1998
Nine-Month  Period  primarily  as a result of the decline in sales and change in
product mix and a $5.4 million decline in depreciation and amortization  expense
primarily due to the effect of "fresh  start"  accounting  previously  discussed
herein.  Gross profit  decreased  $7.7 million or 36.9% to $13.2  million in the
1998 Nine-Month  Period,  and gross profit margin for the 1998 Nine-Month Period
was 11.2% compared to 14.0% for the 1997 Nine-Month Period.  Included in cost of
<PAGE>
goods sold during the 1998  Nine-Month  Period is a $2.6 million charge relating
to increased market reserves recorded as a result of the 1998 Restructuring (see
Note 3 to these Financial Statements).  During the 1998 Nine-Month Period, FAI's
gross profit was $0.4 million and its gross profit margin was 26.4%.

Selling,  general and  administrative  expenses,  excluding  the  provision  for
uncollectible  accounts,  decreased 17.2% to $9.9 million in the 1998 Nine-Month
Period compared to $12.0 million in the 1997 Nine-Month  Period. The majority of
the  decrease  in  the  1998  Nine-Month   Period  is  due  to  lower  incentive
compensation  expense,  depreciation and amortization expense and human resource
related expenses.  Incentive  compensation expense in the 1998 Nine-Month Period
was lower  than in the 1997  Nine-Month  Period due to the  expectation  that no
management  incentive  will be paid for  fiscal  year 1998,  whereas  management
incentive was paid for fiscal year 1997. Additionally,  a one-time special bonus
plan  implemented  in fiscal  year 1997 for  certain  key  employees,  which was
triggered by the Company's  emergence from Bankruptcy was not repeated in fiscal
year 1998. The decline in depreciation and amortization expense is primarily due
to the effect of "fresh start" accounting  previously  discussed  herein.  Human
resource  related  expenses  decreased as a result of the  Company's  continuing
efforts to reduce its overhead in response to reduced sales. Somewhat offsetting
these declines was increased professional expenses. Included in selling, general
and administrative expenses is $0.8 million related to FAI.

The provision for uncollectible  accounts  increased to $0.6 million in the 1998
Nine-Month Period as compared to $0.3 million in the 1997 Nine-Month Period. See
Note 3 to the  Financial  Statements  contained  in the  1997  Form  10-K  for a
discussion of the Company's  accounting  policies regarding the establishment of
its allowance for uncollectible accounts.

Restructuring  items were $1.6 million in the 1998 Nine-Month Period.  Reference
is  made  to  Note  11  to  these  Financial  Statements  for  a  discussion  of
restructuring  items incurred  during the 1998  Nine-Month  Period.  The Company
expects  to  incur  additional  restructuring  items  associated  with  the 1998
Restructuring  during its fourth quarter of fiscal year 1998.  Additionally,  in
connection with a settlement with the former owners of Arenzano,  FAI expects to
recognize  approximately  $0.4 million in restructuring  items during its fourth
quarter of fiscal year 1998.

Interest expense for the 1998 Nine-Month  Period was $4.9 million as compared to
$5.2 million in the 1997  Nine-Month  Period.  This decrease is  attributable to
lower interest rates in effect under the Loan and Security  Agreement during the
1998  Nine-Month  Period as  compared  to  interest  rates in effect in the 1997
Nine-Month Period.

As a result of the foregoing, a loss before reorganization items, income tax and
extraordinary item of $3.9 million was realized in the 1998 Nine-Month Period as
compared to income before  reorganization  items,  income tax and  extraordinary
item of $3.4 million in the 1997 Nine-Month  Period.  During the 1998 Nine-Month
Period,  FAI  realized  a loss  before  reorganization  items,  income  tax  and
extraordinary item of $0.4 million. Income before depreciation and amortization,
reorganization  and  restructuring  items,  interest  expense,  income taxes and
extraordinary  item  during  the 1998  Nine-Month  Period  was $6.3  million  as
compared to $18.6 million during the 1997 Nine-Month Period.  However,  included
in income before depreciation and amortization, reorganization and restructuring
items,  interest expense,  income taxes and  extraordinary  item during the 1998
Nine-Month  Period  was a $2.6  million  charge  relating  to  increased  market
reserves  recorded  as a result of the 1998  Restructuring  (see Note 3 to these
Financial  Statements).  During the 1998  Nine-Month  Period,  FAI's loss before
depreciation and amortization,  reorganization and restructuring items, interest
expense, income taxes and extraordinary item was $0.3 million.
<PAGE>
Reorganization  items  were  $33.4  million  in the 1997  Nine-Month  Period  as
compared to $0.1  million in the 1998  Nine-Month  Period.  Reference is made to
Note 12 to these Financial  Statements for a discussion of reorganization  items
incurred during the 1997 Nine-Month Period and 1998 Nine-Month Period.

During  fiscal year 1995,  the Company  fully  utilized its net  operating  loss
carrybacks as permitted by the Internal  Revenue code.  For the 1998  Nine-Month
Period and the Predecessor  Company 1997 261-Day  Period,  no income tax benefit
was recognized from the realization of net operating  losses. In accordance with
SOP 90-7,  an income tax provision  not payable in cash was  recognized  for the
Reorganized Company 1997 12-Day Period at an effective income tax rate of 39.0%.
Such provision was credited against  additional paid-in capital as net operating
losses generated during the Predecessor  Company 1997 261-Day Period can be used
to offset net taxable income generated in future periods.

As a result of the consummation of the Plan of Reorganization  which resulted in
the exchange of the general  unsecured  claims against the Company for equity in
the reorganized  Company,  the Company  recognized an extraordinary gain on debt
discharge of $24.1 million  during the  Predecessor  Company 1997 79-Day Period.
The Company had sufficient net operating loss  carryforwards to offset this gain
and therefore, no income tax was recorded.

As a result of the foregoing,  net loss for the 1998 Nine-Month  Period was $3.9
million as compared to a net loss of $6.4 million in the 1997 Nine-Month Period.
During the 1998 Nine-Month Period, FAI realized a net loss of $0.4 million.


The Thirteen Weeks ended August 2, 1998 (the "1998 Third  Quarter")  compared to
the Thirteen Weeks ended August 3, 1997 (the "1997 Third Quarter").

Net sales for the 1998 Third  Quarter  were $39.0  million,  a decrease of 27.6%
from the 1997 Third Quarter.  Total yards of fabric sold decreased  29.7% during
the 1998 Third  Quarter.  The average per yard selling price  decreased to $7.62
per yard from $7.73 per yard.  Sales  declined in all major product lines except
for specialty  fabric sales and apparel sales.  Such decrease is attributable to
the reasons discussed in the Nine-Month Period comparison above.

Cost of goods sold  decreased  $10.7  million to $37.0  million  during the 1998
Third Quarter primarily as a result of lower sales.  Gross profit decreased $4.2
million or 67.9% to $2.0  million in the 1998 Third  Quarter,  and gross  profit
margin for the 1998 Third  Quarter was 5.1% compared to 11.4% for the 1997 Third
Quarter.  Included in cost of goods sold during the 1998 Third Quarter is a $1.5
million charge relating to increased market reserves recorded as a result of the
1998 Restructuring (see Note 3 to these Financial  Statements).  During the 1998
Third  Quarter,  FAI's gross profit was $0.4 million and its gross profit margin
was 26.4%.

Selling,  general and  administrative  expenses,  excluding  the  provision  for
uncollectible  accounts,  decreased  21.1% to $3.2  million  in the  1998  Third
Quarter compared to $4.0 million in the 1997 Third Quarter.  The majority of the
decrease  in the  1998  Third  Quarter  is due to lower  incentive  compensation
expense and lower depreciation and amortization.  Such reduction is attributable
to the reasons discussed in the Nine-Month Period comparison above.  Included in
selling, general and administrative expenses is $0.8 million related to FAI.

The provision for uncollectible  accounts was $0.1 million during the 1998 Third
Quarter compared to a gain of $0.1 million during the 1997 Third Quarter.
<PAGE>
Restructuring  items were $1.3 million in the 1998 Third  Quarter.  Reference is
made to Note 11 to these Financial  Statements for a discussion of restructuring
items  incurred  during the 1998 Third  Quarter.  The  Company  expects to incur
additional restructuring items associated with the 1998 Restructuring during its
fourth  quarter  of  fiscal  year  1998.  Additionally,  in  connection  with  a
settlement  with the  former  owners  of  Arenzano,  FAI  expects  to  recognize
approximately  $0.4 million as a restructuring item during its fourth quarter of
fiscal year 1998.

Interest  expense for the 1998 Third  Quarter was $1.8  million or $0.1  million
lower  than the 1997 Third  Quarter.  This  decrease  is  attributable  to lower
interest rates in effect under the Loan and Security  Agreement  during the 1998
Third Quarter as compared to interest rates in effect in the 1997 Third Quarter.

As a result of the foregoing, a loss before reorganization items, income tax and
extraordinary  item of $4.3  million was  realized in the 1998 Third  Quarter as
compared to income before  reorganization  items,  income tax and  extraordinary
item of $0.4 million in the 1997 Third  Quarter.  During the 1998 Third Quarter,
FAI realized a loss before  reorganization  items,  income tax and extraordinary
item  of  $0.4   million.   Income   before   depreciation   and   amortization,
reorganization  and  restructuring  items,  interest  expense,  income taxes and
extraordinary  item during the 1998 Third  Quarter was less than $0.1 million as
compared to $6.6 million  during the 1997 Third  Quarter.  However,  included in
income before  depreciation and amortization,  reorganization  and restructuring
items,  interest expense,  income taxes and  extraordinary  item during the 1998
Third Quarter is a $1.5 million  charge  relating to increased  market  reserves
recorded as a result of the 1998  Restructuring  (see Note 3 to these  Financial
Statements).  During the 1998 Third Quarter,  FAI's loss before depreciation and
amortization,  reorganization and restructuring items, interest expense,  income
taxes and extraordinary item was $0.3 million.

Reorganization items were $25.1 million in the 1997 Third Quarter as compared to
less than $0.1 million during the 1998 Third Quarter.  Reference is made to Note
12 to these  Financial  Statements  for a  discussion  of  reorganization  items
incurred during the 1997 Third Quarter and 1998 Third Quarter.

During  fiscal year 1995,  the Company  fully  utilized its net  operating  loss
carrybacks as permitted by the Internal Revenue code. For the 1998 Third Quarter
and the  Predecessor  Company 1997 79-Day  Period,  no income tax benefit can be
recognized from the realization of net operating  losses. In accordance with SOP
90-7,  an income  tax  provision  not  payable  in cash was  recognized  for the
Reorganized Company 1997 12-Day Period at an effective income tax rate of 39.0%.
Such provision was credited against  additional paid-in capital as net operating
losses generated during the Predecessor  Company 1997 261-Day Period can be used
to offset net taxable income generated in future periods.

As a result of consummation of the Plan of Reorganization  which resulted in the
exchange of the general  unsecured  claims against the Company for equity in the
reorganized  Company,  the  Company  recognized  an  extraordinary  gain on debt
discharge  of $24.1  million  during the 1997 Third  Quarter.  The  Company  had
sufficient  net operating loss carry forwards to offset this gain and therefore,
no income tax was recorded.

As a result  of the  foregoing,  net loss was  $4.2  million  in the 1998  Third
Quarter  compared  to $1.1  million in the 1997 Third  Quarter.  During the 1998
Third Quarter, FAI realized a net loss of $0.4 million.
<PAGE>
PART II -- OTHER INFORMATION

Item 6.    Exhibits and Reports on Form 8-K:

(a)  Exhibits

          4  Amended and Restated Loan and Security  Agreement  dated as
             of September 14, 1998.

         10  Lease Surrender Agreement dated August 31, 1998 between the 
             Company and 1155 Avamer Reality Corp.

         15  Independent Accountants' Review Report, dated September 4, 1998   
             from Deloitte & Touche LLP to Forstmann & Company, Inc.

(b)     Current Reports on Form 8-K

               None
<PAGE>
                                   SIGNATURES


        Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.




                                FORSTMANN & COMPANY, INC.
                                -------------------------
                                (Registrant)




                                /s/Rodney Peckham
                                -----------------
                                Rodney Peckham
                                Executive Vice President
                                Finance, Administration and
                                Strategic Planning

 September 16, 1998
--------------------
      Date
<PAGE>
                                  EXHIBIT INDEX


Exhibit                                                               Sequential
  No.   Description                                                     Page No.
------- ------------                                                  ----------
4       Amended and Restated Loan and Security Agreement
        dated as of September 14, 1998.                                    33

10      Lease Surrender Agreement dated August 31, 1998 between
        the Company and 1155 Avamer Realty Corp.                          247

15      Independent Accountants' Review Report, dated                        
        September 4, 1998, from Deloitte & Touche
        LLP to Forstmann & Company, Inc.                                  265

<PAGE>
                                                                     Exhibit 4

                AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT

                         Dated as of September 14, 1998

                                      Among

                     THE FINANCIAL INSTITUTIONS NAMED HEREIN

                                 as the Lenders

                                       and

                        BANKAMERICA BUSINESS CREDIT, INC.

                                  as the Agent

                                       and

                            FORSTMANN & COMPANY, INC.

                                       and

                             FORSTMANN APPAREL, INC.

                                as the Borrowers

<PAGE>
                                TABLE OF CONTENTS

Section                                                                    Page

                                                     ARTICLE 1

                                         INTERPRETATION OF THIS AGREEMENT

  1.1          Definitions.................................................. 2
               -----------
  1.2          Accounting Terms.............................................33
               ----------------
  1.3          Interpretive Provisions......................................33
               -----------------------

                                                     ARTICLE 2

                                            LOANS AND LETTERS OF CREDIT

  2.1          Total Facility...............................................34
               --------------
  2.2          Revolving Loans..............................................35
               ---------------
  2.3          Term Loans...................................................42
               ----------
  2.4          Letters of Credit............................................43
               -----------------
  2.5          Automated Clearing House Transfers and Overdrafts............49
               -------------------------------------------------

                                                     ARTICLE 3

                                                 INTEREST AND FEES

  3.1          Interest.....................................................50
               --------
  3.2          Conversion and Continuation Elections........................51
               -------------------------------------
  3.3          Maximum Interest Rate........................................52
               ---------------------
  3.4          Facility Fee; Closing Fee....................................53
               -------------------------
  3.5          Unused Line Fee..............................................53
               ---------------
  3.6          Letter of Credit Fee.........................................53
               --------------------

                                                     ARTICLE 4

                                             PAYMENTS AND PREPAYMENTS

  4.1          Revolving Loans..............................................54
               ---------------
  4.2          Termination of Revolving Credit Facility.....................54
               ----------------------------------------
  4.3          Repayment of the Term Loans..................................55
               ---------------------------
  4.4          Voluntary Prepayments of the Term Loans......................55
               ---------------------------------------
  4.5          Mandatory Prepayments of the Term Loans......................55
               ---------------------------------------
  4.6          Payments by the Borrowers....................................56
               -------------------------
  4.7          Payments as Revolving Loans..................................56
               ---------------------------
  4.8          Apportionment, Application and Reversal of Payments..........57
               ---------------------------------------------------
  4.9          Indemnity for Returned Payments..............................57
               -------------------------------
  4.10         Agent's and Lenders' Books and Records; Monthly Statements
               ----------------------------------------------------------
                ............................................................58

                                                     ARTICLE 5

                                      TAXES, YIELD PROTECTION AND ILLEGALITY

  5.1          Taxes........................................................58
               -----
  5.2          Illegality...................................................60
               ----------
  5.3          Increased Costs and Reduction of Return......................60
               ---------------------------------------
  5.4          Funding Losses...............................................61
               --------------
<PAGE>
  5.5          Inability to Determine Rates.................................61
               ----------------------------
  5.6          Certificates of Lenders......................................62
               -----------------------
  5.7          Survival.....................................................62
               --------

                                                     ARTICLE 6

                                                    COLLATERAL

  6.1          Grant of Security Interest...................................62
               --------------------------
  6.2          Perfection and Protection of Security Interest...............63
               ----------------------------------------------
  6.3          Location of Collateral.......................................64
               ----------------------
  6.4          Title to, Liens on, and Sale and Use of Collateral...........65
               --------------------------------------------------
  6.5          Appraisals...................................................66
               ----------
  6.6          Access and Examination; Confidentiality......................66
               ---------------------------------------
  6.7          Collateral Reporting.........................................67
               --------------------
  6.8          Accounts.....................................................68
               --------
  6.9          Collection of Accounts; Payments.............................70
               --------------------------------
  6.10         Inventory; Perpetual Inventory...............................71
               ------------------------------
  6.11         Equipment....................................................71
               ---------
  6.12         Assigned Contracts...........................................72
               ------------------
  6.13         Documents, Instruments, and Chattel Paper....................73
               -----------------------------------------
  6.14         Right to Cure................................................73
               -------------
  6.15         Power of Attorney............................................74
               -----------------
  6.16         The Agent's and Lenders' Rights, Duties and Liabilities......74
               -------------------------------------------------------
  6.17         Site Visits, Observations and Testing........................75
               -------------------------------------

                                                     ARTICLE 7

                BOOKS AND RECORDS; FINANCIAL INFORMATION; NOTICES

  7.1          Books and Records............................................76
               -----------------
  7.2          Financial Information........................................76
               ---------------------
  7.3          Notices to the Lenders.......................................79
               ----------------------

                                                     ARTICLE 8

                                      GENERAL WARRANTIES AND REPRESENTATIONS

  8.1          Authorization, Validity, and Enforceability of this
               ---------------------------------------------------
               Agreement and the Loan Documents............................. 82
               --------------------------------
  8.2          Validity and Priority of Security Interest................... 82
               ------------------------------------------
  8.3          Organization and Qualification............................... 83
               ------------------------------
  8.4          Corporate Name; Prior Transactions........................... 83
               ----------------------------------
  8.5          Subsidiaries and Affiliates.................................. 83
               ---------------------------
  8.6          Projections; Balance Sheet................................... 83
               --------------------------
  8.7          Capitalization............................................... 83
               --------------
  8.8          Solvency..................................................... 84
               --------
  8.9          Debt......................................................... 84
               ----
  8.10         Distributions................................................ 84
               -------------
  8.11         Title to Property............................................ 84
               -----------------
  8.12         Real Estate; Leases.......................................... 84
               -------------------
  8.13         Proprietary Rights........................................... 84
               ------------------
  8.14         Trade Names and Terms of Sale................................ 85
               -----------------------------
  8.15         Litigation................................................... 85
               ----------
  8.16         Restrictive Agreements....................................... 85
               ----------------------
  8.17         Labor Disputes............................................... 85
               --------------
  8.18         Environmental Laws........................................... 85
               ------------------
<PAGE>
  8.19         No Violation of Law.......................................... 87
               -------------------
  8.20         No Default................................................... 87
               ----------
  8.21         ERISA Compliance............................................. 87
               ----------------
  8.22         Taxes........................................................ 88
               -----
  8.23         Regulated Entities........................................... 88
               ------------------
  8.24         Use of Proceeds; Margin Regulations.......................... 88
               -----------------------------------
  8.25         Copyrights, Patents, Trademarks and Licenses, etc............ 88
               -------------------------------------------------
  8.26         No Material Adverse Change................................... 88
               --------------------------
  8.27         Full Disclosure.............................................. 89
               ---------------
  8.28         Material Agreements.......................................... 89
               -------------------
  8.29         Bank Accounts................................................ 89
               -------------
  8.30         Governmental Authorization................................... 89
               --------------------------
  8.31         Acquisition.................................................. 89
               -----------

                                                     ARTICLE 9

                                        AFFIRMATIVE AND NEGATIVE COVENANTS

  9.1          Taxes and Other Obligations.................................. 89
               ---------------------------
  9.2          Corporate Existence and Good Standing........................ 90
               -------------------------------------
  9.3          Compliance with Law and Agreements; Maintenance of
               --------------------------------------------------
               Licenses..................................................... 90
               --------
  9.4          Maintenance of Property...................................... 90
               -----------------------
  9.5          Insurance.................................................... 90
               ---------
  9.6          Condemnation................................................. 92
               ------------
  9.7          Environmental Laws........................................... 92
               ------------------
  9.8          Compliance with ERISA........................................ 93
               ---------------------
  9.9          Mergers, Consolidations or Sales............................. 93
               --------------------------------
  9.10         Distributions; Capital Change; Restricted Investments........ 94
               -----------------------------------------------------
  9.11         Transactions Affecting Collateral or Obligations............. 94
               ------------------------------------------------
  9.12         Guaranties................................................... 94
               ----------
  9.13         Debt......................................................... 94
               ----
  9.14         Prepayment................................................... 94
               ----------
  9.15         Transactions with Affiliates................................. 95
               ----------------------------
  9.16         Investment Banking and Finder's Fees......................... 95
               ------------------------------------
  9.17         Business Conducted........................................... 96
               ------------------
  9.18         Liens........................................................ 96
               -----
  9.19         Sale and Leaseback Transactions.............................. 96
               -------------------------------
  9.20         Subsidiaries................................................. 96
               ------------
  9.21         Fiscal Year.................................................. 96
               -----------
  9.22         Capital Expenditures; MIS Expenditures....................... 96
               --------------------------------------
  9.23         Operating Lease Obligations.................................. 97
               ---------------------------
  9.24         Adjusted Tangible Net Worth.................................. 97
               ---------------------------
  9.25         Interest Coverage Ratio...................................... 97
               -----------------------
  9.26         Fixed Charge Coverage Ratio.................................. 98
               ---------------------------
  9.27         Use of Proceeds.............................................. 98
               ---------------
  9.28         Plan of Reorganization....................................... 98
               ----------------------
  9.29         Further Assurances........................................... 98
               ------------------
  9.30         Minimum EBITDA............................................... 98
               --------------

                                                    ARTICLE 10

                                               CONDITIONS OF LENDING

  10.1         Conditions Precedent to Effectiveness of Agreement........... 99
               --------------------------------------------------
  10.2         Conditions Precedent to Each Loan............................101
               ---------------------------------

<PAGE>
                                                    ARTICLE 11

                                                 DEFAULT; REMEDIES

  11.1         Events of Default............................................102
               -----------------
  11.2         Remedies.....................................................105
               --------

                                                    ARTICLE 12

                                               TERM AND TERMINATION

  12.1         Term and Termination.........................................107
               --------------------

                                                    ARTICLE 13

                      AMENDMENTS; WAIVER; PARTICIPATION; ASSIGNMENTS; SUCCESSORS

  13.1         No Waivers; Cumulative Remedies..............................107
               -------------------------------
  13.2         Amendments and Waivers.......................................107
               ----------------------
  13.3         Assignments; Participation...................................108
               --------------------------

                                                    ARTICLE 14

                                                     THE AGENT

  14.1         Appointment and Authorization................................111
               -----------------------------
  14.2         Delegation of Duties.........................................112
               --------------------
  14.3         Liability of Agent...........................................112
               ------------------
  14.4         Reliance by Agent............................................112
               -----------------
  14.5         Notice of Default............................................113
               -----------------
  14.6         Credit Decision..............................................113
               ---------------
  14.7         Indemnification..............................................114
               ---------------
  14.8         Agent in Individual Capacity.................................114
               ----------------------------
  14.9         Successor Agent..............................................115
               ---------------
  14.10        Withholding Tax..............................................115
               ---------------
  14.11        Collateral Matters...........................................117
               ------------------
  14.12        Agency for Perfection........................................118
               ---------------------
  14.13        Payments by Agent to Lenders.................................118
               ----------------------------
  14.14        Concerning the Collateral and the Related Loan Documents
                ............................................................118

                                                    ARTICLE 15

                                                   MISCELLANEOUS

  15.1         Cumulative Remedies; No Prior Recourse to Collateral.........119
               ----------------------------------------------------
  15.2         Severability.................................................119
               ------------
  15.3         Governing Law; Choice of Forum; Service of Process...........119
               --------------------------------------------------
  15.4         WAIVER OF JURY TRIAL.........................................120
               --------------------
  15.5         Survival of Representations and Warranties...................120
               ------------------------------------------
  15.6         Other Security and Guaranties................................121
               -----------------------------
  15.7         Fees and Expenses............................................121
               -----------------
  15.8         Notices......................................................122
               -------
  15.9         Waiver of Notices............................................123
               -----------------
  15.10        Binding Effect...............................................123
               --------------
  15.11        Indemnity of the Agent and the Lenders by the Borrower.......123
               ------------------------------------------------------
  15.12        Restrictions on Actions by Lenders; Sharing of Payments......124
               -------------------------------------------------------
<PAGE>
  15.13        Field Audit and Examination Reports; Disclaimer by Lenders
                ............................................................125
  15.14        Relation Among Lenders.......................................126
               ----------------------
  15.15        Limitation of Liability......................................126
               -----------------------
  15.16        Final Agreement..............................................126
               ---------------
  15.17        Counterparts.................................................126
               ------------
  15.18        Captions.....................................................126
               --------
  15.19        Signatures by Telecopy.......................................127
               ----------------------
  15.20        Joint and Several Liability..................................127
               ---------------------------
  15.21        Waiver of Default............................................128
               -----------------

<PAGE>
                             EXHIBITS AND SCHEDULES

EXHIBIT A -                    Form of Term Note

SCHEDULE A TO NOTE -           Base Rate Loans and Repayment of
                               Base Rate Loans

SCHEDULE B TO NOTE -           LIBOR Rate Loans and Repayment of
                               LIBOR Rate Loans

EXHIBIT B -                    Form of Borrowing Base Certificate

EXHIBIT C -                    [Intentionally omitted.]

EXHIBIT D -                    List of Closing Documents

EXHIBIT E -                    Form of Notice of Borrowing

EXHIBIT F -                    Form of Notice of
                               Conversion/Continuation

EXHIBIT G -                    Form of Assignment and Acceptance
                               Agreement

EXHIBIT H -                    Form of Subsidiary Pledge Agreement
                               (Accounts Receivable Notes)

EXHIBIT I -                    Form of Company Pledge Agreement
                               (Accounts Receivable Notes)

EXHIBIT J -                    Form of Company Pledge Agreement
                               (Shares of FAI)

SCHEDULE 1.1(a) -              Assigned Contracts

SCHEDULE 1.1(b) -              Locations of Eligible Inventory

SCHEDULE 1.1(c) -              Permitted Liens

SCHEDULE 1.1(d) -              Restricted Investments

SCHEDULE 6.3 -                 Facilities and Locations

SCHEDULE 6.7 -                 Collateral Reports

SCHEDULE 8.3 -                 Jurisdictions of Qualification to do
                               Business

SCHEDULE 8.4 -                 Corporate Names

SCHEDULE 8.5 -                 Affiliates

SCHEDULE 8.6(c) -              Pro Forma Balance Sheet

SCHEDULE 8.9 -                 Debt

SCHEDULE 8.12 -                Real Estate Owned or Leased


<PAGE>



SCHEDULE 8.13 -                Proprietary Rights

SCHEDULE 8.14 -                Trade Names

SCHEDULE 8.15 -                Litigation

SCHEDULE 8.17 -                Labor Matters

SCHEDULE 8.18 -                Environmental Law Matters

SCHEDULE 8.21 -                ERISA Matters

SCHEDULE 8.22 -                Taxes

SCHEDULE 8.28 -                Material Agreements

SCHEDULE 8.29 -                Bank Accounts

SCHEDULE 8.31 -                Reorganization Matters

SCHEDULE 9.15 -                Promissory Notes

SCHEDULE 9.17 -                Management Compensation






                AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT

         Loan and Security  Agreement,  dated as of July 23, 1997, as amended by
Amendment No. 1 to Loan and Security  Agreement,  dated as of March 13, 1998, as
amended by Amendment No. 2 to Loan and Security Agreement, dated as of March 24,
1998 (the  "Original Loan  Agreement"),  as amended and restated as of September
14, 1998, among the financial  institutions listed on the signature pages hereof
(such  financial  institutions,  together with their  respective  successors and
assigns,  are  referred  to  hereinafter  each  individually  as a "Lender"  and
collectively as the "Lenders");  BankAmerica  Business Credit,  Inc., a Delaware
corporation  ("BABC") with an office at 40 East 52nd Street,  New York, New York
10022,  as agent for the Lenders (in its capacity as agent,  the  "Agent");  and
Forstmann & Company, Inc., a Georgia corporation, with offices at 1155 Avenue of
the Americas,  New York,  New York 10036  ("Forstmann")  and Forstmann  Apparel,
Inc., a New York  corporation,  with offices at 500 Seventh Avenue,  17th Floor,
New  York,  New York  10018  ("FAI")  (each  of the  foregoing,  individually  a
"Borrower" and, collectively, the "Borrowers").


                               W I T N E S S E T H


         WHEREAS, Forstmann filed in the United States Bankruptcy Court
for the Southern District of New York (the "Bankruptcy Court") a


<PAGE>



petition for relief under Chapter 11 of the Bankruptcy Code (as
defined below) and proposed a plan of reorganization; and

         WHEREAS, by an order dated July 9, 1997, the Bankruptcy Court confirmed
Forstmann's plan of reorganization; and

         WHEREAS,  Forstmann,  certain  financial  institutions  (the  "Original
Lenders") and the Agent are parties to the Original Loan  Agreement  pursuant to
which,  inter  alia,  the Agent  and the  Original  Lenders  made  available  to
Forstmann  a  revolving  line of credit  for loans and  letters  of credit in an
amount  not to  exceed  $85,000,000  and made  term  loans to  Forstmann  in the
aggregate principal amount of $31,450,000; and

         WHEREAS, the Borrowers,  the Agent and the other parties hereto wish to
amend and restate the Original Loan Agreement to, inter alia,  permit  Forstmann
to establish a wholly-owned subsidiary (FAI) which will operate in a new line of
business, to include FAI as a Borrower hereunder, and permit FAI to use proceeds
of the loans  hereunder to acquire  certain  assets and to operate its business,
upon the terms and conditions set forth in this Agreement.

         NOW,   THEREFORE,   in  consideration  of  the  mutual  conditions  and
agreements set forth in this Agreement, and for good and valuable consideration,
the receipt of which is hereby  acknowledged,  the Lenders,  the Agent,  and the
Borrowers  hereby agree that the Original Loan  Agreement is hereby  amended and
restated to read in its entirety as follows.


                                                     ARTICLE 1

                                         INTERPRETATION OF THIS AGREEMENT

         1.1          Definitions.  As used herein:

                      "Accounts" means any and all of the Borrowers' now
owned or hereafter acquired or arising accounts, and any other rights to payment
for the sale or lease of goods or  rendition  of  services,  whether or not they
have been earned by performance.

                      "Account Debtor" means each Person obligated in any way
on or in connection with an Account.

                      "ACH Settlement Risk Reserve" means any and all
reserves which the Agent from time to time establishes,  in its sole discretion,
with respect to ACH Transactions.

                      "ACH Transactions" means all debts, liabilities, and
obligations now or hereafter owing from the Borrowers to Bank of America arising
from or related to cash  management  services  including the automatic  clearing
house transfer of funds by the Bank of America for the accounts of the Borrowers
pursuant to agreement or overdrafts.

                      "Acquisition Order" means the order of the Bankruptcy
Court, dated May 8, 1998 authorizing the sale of substantially all


<PAGE>



of the assets of Arenzano Trading Co., Inc. ("Arenzano") and B&B
Corporation ("BBC") to FAI.

                      "Adjusted Tangible Assets" means all of the Borrowers'
assets except:  (a) deferred  assets,  other than prepaid  insurance and prepaid
taxes; (b) patents, copyrights,  trademarks, trade names, franchises,  goodwill,
and other similar  intangibles;  (c) unamortized debt discount and expense;  (d)
assets of the Borrowers constituting Intercompany Accounts; and (e) fixed assets
to the  extent  of any  write-up  in the book  value  thereof  resulting  from a
revaluation effective after the Closing Date.

                      "Adjusted Tangible Net Worth" means, at any date:  (a)
the  book   value   (after   deducting   related   depreciation,   obsolescence,
amortization,  valuation,  and other proper reserves as determined in accordance
with  GAAP)  at  which  the  Adjusted  Tangible  Assets  would  be  shown  on  a
consolidated  balance sheet of the Borrowers at such date prepared in accordance
with GAAP;  less (b) the amount at which the Borrowers'  liabilities  (excluding
deferred tax liabilities and Unfunded Pension  Liability) would be shown on such
balance sheet, including as liabilities all reserves for contingencies and other
potential liabilities which would be required to be shown on such balance sheet;
provided,  however,  that any  calculation  of  "Adjusted  Tangible  Net  Worth"
pursuant to this Agreement shall exclude any extraordinary  gains and losses and
any last-in-first-out  ("LIFO") adjustments on a cumulative basis from and after
the Effective Date, provided further, however, that any calculation of 'Adjusted
Tangible  Net Worth'  pursuant to this  Agreement  shall  exclude the  1998-1999
Extraordinary Charges.

                      "Affiliate" means, as to any Person, any other Person
which,  directly or indirectly,  is in control of, is controlled by, or is under
common  control with,  such Person or which owns,  directly or  indirectly,  ten
percent  (10%) or more of the  outstanding  equity  interest of such  Person.  A
Person  shall be deemed to  control  another  Person if the  controlling  Person
possesses, directly or indirectly, the power to direct or cause the direction of
the management and policies of the other Person,  whether  through the ownership
of voting securities, by contract, or otherwise.  Notwithstanding the foregoing,
the term  "Affiliate,"  as it pertains to the Borrowers,  shall not be deemed to
include any Lender or any Affiliate of any Lender.

                      "Agent" means BankAmerica Business Credit, Inc., solely
in its capacity as agent for the Lenders, and any successor agent.

                      "Agent Advances" has the meaning specified in Section
2.2(i).

                      "Agent's Liens" means the Liens in the Collateral
granted to the Agent,  for the ratable  benefit of the Lenders,  BABC, and Agent
pursuant to this Agreement and the other Loan Documents.

                      "Agent-Related Persons" means the Agent and any
successor agent,  together with their respective  Affiliates,  and the officers,
directors,   employees,   agents  and  attorneys-in-fact  of  such  Persons  and
Affiliates.


<PAGE>



                      "Aggregate Revolver Outstandings" means, at any time,
the sum of all Revolver Outstandings for all Borrowers.

                      "Aggregate Availability" means, at any time, the sum of
the Availability for all Borrowers.

                      "Agreement" means this Amended and Restated Loan and
Security Agreement.

                      "Anniversary Date" means each anniversary of the
Closing Date.

                      "Applicable Margin" means

                            (i)    with respect to Base Rate Revolving Loans and
all other  Obligations  (other than Base Rate Term Loans and LIBOR Rate  Loans),
one-quarter of one percent (.25%);

                           (ii)    with respect to Base Rate Term Loans, three-
quarters of one percent (.75%);

                          (iii)    with respect to LIBOR Revolving Loans, two
and one-half percent (2.50%); and

                           (iv)    with respect to LIBOR Term Loans, three
percent (3.00%).

                      "Assigned Contracts" means, collectively, all of each
Borrower's rights and remedies under, and all moneys and claims for money due or
to become due to such  Borrower  under  those  contracts  set forth on  Schedule
1.1(a),  and  any  other  material  contracts,   and  any  and  all  amendments,
supplements, extensions, and renewals thereof including, without limitation, all
rights and claims of such  Borrower  now or  hereafter  existing:  (i) under any
insurance,  indemnities,  warranties, and guarantees provided for or arising out
of or in connection with any of the foregoing  agreements;  (ii) for any damages
arising out of or for breach or default under or in  connection  with any of the
foregoing  contracts;  (iii) to all  other  amounts  from  time to time  paid or
payable under or in connection with any of the foregoing agreements;  or (iv) to
exercise  or enforce  any and all  covenants,  remedies,  powers and  privileges
thereunder.

                      "Assignee" has the meaning specified in Section
13.3(a).

                      "Assignment and Acceptance" has the meaning specified
in Section 13.3(a).

                      "Attorney Costs" means and includes all reasonable
fees,  expenses  and  disbursements  of any law firm or other  external  counsel
engaged by the Agent (including, without limitation, special local counsel), all
paralegals'  fees  and  disbursements,  the  allocated  cost of  internal  legal
services of the Agent and all expenses and  disbursements of internal counsel of
the Agent.

                      "Availability" means, at any time, for any Borrower,


<PAGE>



         (a) the lesser of:

                      (i) if the Borrower is Forstmann, the Maximum Revolver
Amount less the aggregate Revolver Outstandings for all other Borrowers,  and if
the  Borrower  is FAI,  the lesser of (a) the Maximum  Revolver  Amount less the
aggregate Revolver Outstandings for all other Borrowers, or (b) $12,000,000; or

                      (ii) the sum of:

                              (A)  if the  Borrower  is  Forstmann,  eighty-five
                              percent (85%),  and if the Borrower is FAI, eighty
                              percent  (80%)  (provided,  however,  that  if the
                              Borrower   is   FAI,   and  the   calculation   of
                              Availability  is made in the  months  of  January,
                              February,  March,  August,  September  or October,
                              such  percentage  shall  be  eighty-five   percent
                              (85%)),  of the Net  Amount of  Eligible  Accounts
                              (other than Eligible Bill and Hold  Accounts) owed
                              to such Borrower,

                              (B) if the  Borrower is  Forstmann,  the lesser of
                              $15 million (less the aggregate amount of Eligible
                              Bill and Hold Accounts for all other Borrowers) or
                              eighty-five  percent  (85%) of the Net  Amount  of
                              Eligible Bill and Hold Accounts owed to Forstmann,

                              (C) (1) if the Borrower is  Forstmann,  (a) in the
                              case   of   Eligible   Inventory   consisting   of
                              work-in-process  or yarn,  fifty  percent (50%) of
                              the    lower    of   cost,    determined    on   a
                              first-in-first-out ("FIFO") basis, or market value
                              of such Eligible  Inventory of such Borrower,  and
                              (b) in the case of all other  Eligible  Inventory,
                              sixty-five  percent  (65%)  of the  lower of cost,
                              determined on a first-in-first-out ("FIFO") basis,
                              or market value of such Eligible Inventory of such
                              Borrower, and

                                       (2) if the Borrower is FAI, fifty percent
                              (50%)  of  the  lower  of  cost,  determined  on a
                              first-in-first-out ("FIFO") basis, or market value
                              of Eligible Inventory  consisting of raw materials
                              of such Borrower,  and sixty (60%) of the lower of
                              cost, determined on a first-in-first-out  ("FIFO")
                              basis,  or  market  value  of  Eligible  Inventory
                              consisting of finished goods of such Borrower, and

                              (D) without  duplication of (C), above, (1) if the
                              Borrower is Forstmann, fifty-five percent (55%) of
                              the lower of cost,  determined on a FIFO basis, or
                              market   value  of   Eligible   Letter  of  Credit
                              Inventory of such Borrower;



<PAGE>



                              (2) if the  Borrower  is FAI,  forty-five  percent
                              (45%) of the lower of cost,  determined  on a FIFO
                              basis,  or  market  value of  Eligible  Letter  of
                              Credit  Inventory of such  Borrower  consisting of
                              piece goods,  and fifty-five  percent (55%) of the
                              lower  of cost,  determined  on a FIFO  basis,  or
                              market   value  of   Eligible   Letter  of  Credit
                              Inventory of such Borrower  consisting of finished
                              goods;


                              provided,  that  at  no  time  shall  the  sum  of
                              outstanding  Revolving  Loans based upon the value
                              of (C) and (D) above exceed $30,000,000  ("Maximum
                              Inventory   Loan")  for  all   Borrowers   in  the
                              aggregate,  or  $4,000,000 if the Borrower is FAI,
                              and provided that in the case of any Borrower,  at
                              no time  shall  the sum of  outstanding  Revolving
                              Loans to such Borrower based upon the value of (C)
                              and (D) above exceed the sum of  $30,000,000  less
                              the amount of such loans  outstanding to all other
                              Borrowers; minus

         (b) the sum of:

                      (i) the Revolver Outstandings for such Borrower,

                      (ii) reserves for such Borrower for accrued interest on
                      the Obligations,

                      (iii) the Environmental Compliance Reserve for such
                      Borrower,

                      (iv) the ACH Settlement Risk Reserve for such Borrower,
                      (v) in the case of FAI, the Promotional Reserve for
                      such Borrower,

                      (vi) in the case of Forstmann, the Availability
                      Reserve, and

                      (vii) all other reserves  (including,  without limitation,
                      any and all reserves  established  by the Agent in respect
                      of waivers referenced in Section 6.2(b) which any Borrower
                      has failed to obtain,  Liens  referenced  in Section  9.1,
                      judgments   referenced   in  Section   11.1(m)  or  taxes,
                      assessments or other similar charges of any Borrower under
                      Section  9.1)  which  the  Agent  deems  necessary  in the
                      reasonable  exercise  of its credit  judgment  to maintain
                      with  respect  to  the  Borrowers'  accounts,   including,
                      without  limitation,  reserves  for any amounts  which the
                      Agent or any Lender may be  obligated to pay in the future
                      for the account of any Borrower.

                      "Availability Reserve" means, at any time, the
difference of (i) $6,500,000, minus (ii) the product of (x) $47,500
times (y) the number of all regularly scheduled payments of


<PAGE>



principal made by the Borrowers pursuant to Section 2.3(c), with respect to Term
Loans on or prior to such time.

                      "BABC" has the meaning specified in the introductory
paragraph hereof.

                      "BABC Loan" and "BABC Loans" have the meanings
specified in Section 2.2(h).

                      "Bank of America" means Bank of America National Trust
and Savings Association, a national banking association, or any
successor entity thereto.

                      "Bankruptcy Code" means Title 11 of the United States
Code (11 U.S.C.Code 101 et seq.).

                      "Bankruptcy Court" has the meaning specified in the
introductory paragraph hereof.

                      "Base Rate" means, for any day, the rate of interest in
effect for such day as publicly  announced  from time to time by Bank of America
in San Francisco,  California,  as its "reference  rate" (the  "reference  rate"
being a rate set by Bank of America based upon various factors including Bank of
America's  costs and  desired  return,  general  economic  conditions  and other
factors,  and is used as a reference point for pricing some loans,  which may be
priced at, above,  or below such  announced  rate).  Any change in the reference
rate  announced by Bank of America  shall take effect at the opening of business
on the day specified in the public  announcement  of such change.  Each Interest
Rate based upon the Base Rate shall be adjusted  simultaneously  with any change
in the Base Rate.

                      "Base Rate Loans" means, collectively, the Base Rate
Revolving Loans and the Base Rate Term Loans.

                      "Base Rate Revolving Loan" means a Revolving Loan
during any period in which it bears interest based on the Base
Rate.

                      "Base Rate Term Loan" means any portion of a Term Loan
during any period in which such portion bears interest based on the Base Rate.

                      "Bill and Hold Accounts" means Accounts of any Borrower
for  Inventory  that has been  sold and  invoiced  to an  Account  Debtor in the
ordinary course of business  consistent  with past  practices,  as to which such
Borrower has no further  work to do on such  Inventory,  the Account  Debtor has
accepted the subject  Inventory  and title to such  Inventory has passed to such
Account Debtor under a written agreement or confirmation of order issued by such
Borrower,  but such Account Debtor has not yet paid the invoice and has directed
such Borrower to hold shipment of such Inventory  pending delivery  instructions
from such  Account  Debtor;  provided  such  Account  Debtor is  unconditionally
obligated to pay such invoice at the maturity date stated therein  regardless of
when shipment is made and such Inventory is under such Borrower's


<PAGE>



exclusive control and identifiable by piece number on such
Borrower's accounting records.

                      "Bill of Sale" means the General Bill of Sale dated May
13, 1998 by Arenzano and BBC,  transferring  substantially  all of the assets of
Arenzano and BBC to FAI.


                      "Borrower" and "Borrowers" have the meanings specified
in the introductory paragraph hereof.

                      "Borrowing" means a borrowing hereunder consisting of
Revolving  Loans or Term Loans made  pursuant to a single Notice of Borrowing by
the Lenders to any  Borrower  (or by BABC in the case of a  Borrowing  funded by
BABC  Loans) or by the Agent in the case of a Borrowing  consisting  of an Agent
Advance.

                      "Borrowing Base Certificate"  means, with respect to
any  Borrower,  a  certificate  by a  Responsible  Officer of  Forstmann or such
Borrower,  substantially in the form of Exhibit B (or another form acceptable to
the Agent) setting forth the calculation of the  Availability for such Borrower,
including a calculation of each component  thereof,  as of the close of business
no more than five (5) Business Days prior to the date of such  certificate,  all
in such detail as shall be satisfactory to the Agent;  provided,  however,  that
Eligible  Inventory  for  such  Borrower  and  all  components  thereof  may  be
calculated  as of the  close of  business  on the  last  day of the  immediately
preceding  fiscal  month,  unless a Default  or an Event of  Default  shall have
occurred and be  continuing,  in which case Eligible  Inventory of such Borrower
and all  components  thereof may be  calculated  as  frequently as the Agent may
request.  All  calculations  of  Availability  with  respect to any  Borrower in
connection  with  the  preparation  of  any  Borrowing  Base  Certificate  shall
originally  be made by such  Borrower  and  certified  to the  Agent;  provided,
however,  that the  Agent  shall  have the right to review  and  adjust,  in the
reasonable exercise of its credit judgment,  any such calculation (1) to reflect
its reasonable estimate of declines in value of any of the Collateral  described
therein,  and (2) to the extent that such  calculation is not in accordance with
this Agreement.

                      "Business Day"  means (a) any day that is not a
Saturday,  Sunday,  or a day  on  which  banks  in New  York,  New  York  or San
Francisco,  California,  are required or  permitted  to be closed,  and (b) with
respect to all notices, determinations, fundings and payments in connection with
the LIBOR Rate or LIBOR Rate Loans,  any day that is a Business  Day pursuant to
clause  (a) above and that is also a day on which  trading in Dollars is carried
on by and between banks in the London interbank market.

                      "Capital Adequacy Regulation" means any guideline,
request or directive of any central bank or other Governmental Authority, or any
other law, rule or  regulation,  whether or not having the force of law, in each
case, regarding capital adequacy of any bank or of any corporation controlling a
bank.



<PAGE>



                      "Capital Expenditures" means all payments due (whether
or not  paid) in  respect  of the cost of any  fixed  asset or  improvement,  or
replacement,  substitution, or addition thereto, which has a useful life of more
than one year, including,  without limitation, those costs arising in connection
with the  direct  or  indirect  acquisition  of such  asset by way of  increased
product  or  service  charges or offset  items or in  connection  with a Capital
Lease.

                      "Capital Lease" means any lease of property by any
Borrower  which, in accordance with GAAP, is or should be reflected as a capital
lease on the balance sheet of such Borrower.

                      "Capital Stock" means common stock or other voting
securities.

                      "Closing Date" means  September 14, 1998.

                      "Closing Fee" has the meaning specified in Section 3.4.

                      "Code" means the Internal Revenue Code of 1986, as
amended from time to time, and any successor statute, and
regulations promulgated thereunder.

                      "Collateral" has the meaning specified in Section 6.1.

                      "Commitment" means, at any time with respect to a
Lender, such Lender's Term Loan Commitment and Revolving Credit Commitment,  and
"Commitments"  means,  collectively,  the Term Loan  Commitments  and  Revolving
Credit Commitments of all of the Lenders.

                      "Confirmation Order" has the meaning specified in the
Disclosure Statement.

                      "Contaminant" means any waste, pollutant, hazardous
substance,  toxic  substance,  hazardous  waste,  special  waste,  petroleum  or
petroleum-derived  substance  or  waste,  asbestos  in any  form  or  condition,
polychlorinated  biphenyls ("PCBs"), or any constituent of any such substance or
waste.

                      "Conversion/Continuation Date" means each date on which
a Loan is to be converted  into or  continued  as a LIBOR Rate Loan  pursuant to
Section 3.2.

                      "Credit Support" has the meaning specified in Section
2.4(a).

                      "Debt" means all liabilities, obligations and
indebtedness  of any  Borrower  to any  Person,  of any kind or  nature,  now or
hereafter  owing,  arising,  due  or  payable,  howsoever  evidenced,   created,
incurred,  acquired or owing, whether primary,  secondary,  direct,  contingent,
fixed or otherwise, and including, without in any way limiting the generality of
the  foregoing:  (i)  such  Borrower's  liabilities  and  obligations  to  trade
creditors;  (ii) all  Obligations;  (iii) all obligations and liabilities of any
Person  secured  by any  Lien on such  Borrower's  property,  even  though  such
Borrower shall not have assumed or become liable for the


<PAGE>



payment thereof;  provided,  however,  that all such obligations and liabilities
which are limited in recourse to such property shall be included in Debt only to
the extent of the book value of such property as would be shown on balance sheet
of such  Borrower  prepared in accordance  with GAAP;  (iv) all  obligations  or
liabilities  created or arising under any Capital Lease or  conditional  sale or
other title  retention  agreement  with respect to property  used or acquired by
such Borrower,  even if the rights and remedies of the lessor,  seller or lender
thereunder are limited to repossession of such property; provided, however, that
all such  obligations  and  liabilities  which are  limited in  recourse to such
property  shall be included in Debt only to the extent of the book value of such
property as would be shown on balance sheet of the applicable  Borrower prepared
in accordance  with GAAP;  (v) all accrued ERISA Plan and other pension fund and
other employee benefit plan  obligations and  liabilities;  (vi) all obligations
and liabilities  under  Guaranties;  (vii) all obligations and liabilities under
any swap, cap or other financial arrangement; and (viii) deferred taxes.

                      "Debt For Borrowed Money" means Debt for borrowed money
or as evidenced by notes,  bonds,  debentures  or similar  evidences of any such
Debt of such Person,  the deferred and unpaid  purchase price of any property or
business (other than trade accounts  payable  incurred in the ordinary course of
business and constituting current liabilities) and all obligations under Capital
Leases.

                      "Default" means any event or circumstance which, with
the  giving  of  notice,  the  lapse of time,  or both,  would  (if not cured or
otherwise remedied during such time) constitute an Event of Default.

                      "Defaulting Lender" has the meaning specified in
Section 2.2(g)(ii).

                      "Default Rate" means a fluctuating per annum interest
rate at all times equal to the sum of (a) the otherwise applicable Interest Rate
plus (b) two percent  (2%).  Each Default Rate shall be adjusted  simultaneously
with any change in the applicable Interest Rate.

                      "Deferred Interest Notes" has the meaning specified in
the Disclosure Statement.

                      "Disclosure Statement" means the First Amended
Disclosure  Statement  Pursuant  to  Section  1125 of the  Bankruptcy  Code  for
Forstmann's  Plan of  Reorganization,  dated May 14,  1997,  as  approved by the
Bankruptcy Court.

                      "Distribution" means, in respect of any corporation:
(a) the payment or making of any dividend or other  distribution  of property in
respect of capital  stock (or any  options or  warrants  for such stock) of such
corporation,  other  than  distributions  in  capital  stock (or any  options or
warrants  for such stock) of the same class;  or (b) the  redemption,  purchase,
retirement or other  acquisition of, or any defeasance,  sinking fund payment or
other


<PAGE>



setting  aside of funds in  respect  of,  any  capital  stock  (or any  options,
warrants or other rights with respect to such stock) of such corporation.

                      "Documentary Letter of Credit" means a documentary
Letter of Credit  issued for the  account  of any  Borrower  to provide  for the
intended  means of making  payment when due by such Borrower for the purchase of
Inventory  or  Equipment  (subject,  in the  case  of  Equipment,  to the  limit
specified in Section 9.22) and available for drawing  against  presentation  of,
inter alia, negotiable documents of title covering such Inventory.

                      "DOL" means the United States Department of Labor or
any successor department or agency.

                      "Dollar" and "$" means dollars in the lawful currency
of the United States of America and, in relation to any amount to be advanced or
paid hereunder, funds having same day or immediate value.

                      "EDATNW" means the Adjusted Tangible Net Worth as of
the Effective Date after all adjustments required in connection with application
of the  principles  of "fresh  start"  accounting  as set forth in  Statement of
Position 90-7 issued by the American Institute of Certified Public Accountants.

                      "EBITDA" means, for any period, the sum of:

                            (i) the net  income  (or net loss) of the  Borrowers
         (determined on a consolidated  basis in accordance  with GAAP) for such
         period, without giving effect to any GAAP extraordinary gains or losses
         and  without   deduction  for   Reorganization   Charges  or  1998-1999
         Extraordinary Charges; plus (or minus)

                           (ii) to the extent that any of the items  referred to
         in any of  clauses  (A)  through  (E) below were  deducted  or added in
         calculating such net income:

                                       (A) interest expense of the Borrowers for
                      such period;

                                       (B) federal,  state or local  income tax
                      expense of the Borrowers  with respect to  operations  for
                      such period;

                                       (C) the  amount of all  depreciation  and
                      amortization and other non-cash charges for such period

                                       (D) LIFO adjustments for such period; and

                                       (E)  non-cash  gains or  losses  from the
                      sale or disposal of property (other than Inventory);  plus
                      (or minus)

                          (iii) the amount of cash  received or expended in such
         period in respect of any amount which, under clause (C)


<PAGE>



         above, was taken into account in determining EBITDA for such
         or any prior period.

                      "Effective Date" has the meaning given to that term in
the Plan of Reorganization.  The Effective Date shall occur not
later than the Closing Date.

                      "Eligible Accounts" means all Accounts of any Borrower
which the Agent in the reasonable  exercise of its credit judgment determines to
be Eligible Accounts.  Without limiting the discretion of the Agent to establish
other criteria of  ineligibility,  Eligible Accounts shall not, unless the Agent
in its sole discretion elects, include any Account:

                            (i)        (A) in the case of "dated" Accounts of
Forstmann  arising  in the  ordinary  course of  business  consistent  with past
practices,  with respect to which more than 245 days have elapsed since the date
of the original  invoice therefor or it is more than 30 days past due and (B) in
the case of all other Accounts, with respect to which more than 120 days, in the
case of Forstmann, or 90 days in the case of FAI, have elapsed since the date of
the original invoice therefor or it is more than 60 days past due;

                           (ii)        with respect to which any of the
representations,  warranties, covenants, and agreements contained in Section 6.8
are not or have ceased to be complete and correct or have been breached;

                          (iii)      with respect to which, in whole or in part,
a check,  promissory note,  draft,  trade acceptance or other instrument for the
payment  of  money  has  been  received,  presented  for  payment  and  returned
uncollected for any reason;

                           (iv)       which represents a progress billing (as
hereinafter  defined)  or as to which any  Borrower  has  extended  the time for
payment  without the consent of the Agent;  for the purposes  hereof,  "progress
billing" means any invoice for goods sold or leased or services rendered under a
contract or agreement  pursuant to which the Account Debtor's  obligation to pay
such invoice is conditioned  upon any such Borrower's  completion of any further
performance under the contract or agreement;

                            (v)     as to which any one or more of the following
events has occurred with respect to the Account Debtor on such Account: death or
judicial  declaration of incompetency of an Account Debtor who is an individual;
the  filing by or  against  the  Account  Debtor of a request  or  petition  for
liquidation, reorganization, arrangement, adjustment of debts, adjudication as a
bankrupt,  winding-up,  or other relief  under the  bankruptcy,  insolvency,  or
similar laws of the United States of America, any state or territory thereof, or
any foreign jurisdiction,  now or hereafter in effect; the making of any general
assignment by the Account Debtor for the benefit of creditors;  the  appointment
of a receiver or trustee for the Account  Debtor or for any of the assets of the
Account  Debtor,  including,  without  limitation,  the appointment of or taking
possession by a "custodian," as defined in


<PAGE>



the  Bankruptcy  Code;  the  institution by or against the Account Debtor of any
other type of insolvency  proceeding  (under the  bankruptcy  laws of the United
States of America or otherwise) or of any formal or informal  proceeding for the
dissolution or liquidation of,  settlement of claims  against,  or winding up of
affairs of, the Account Debtor; the sale, assignment,  or transfer of all or any
material part of the assets of the Account Debtor;  the nonpayment  generally by
the Account  Debtor of its debts as they become  due;  or the  cessation  of the
business of the Account Debtor as a going concern;

                           (vi)        if fifty percent (50%) or more of the
aggregate Dollar amount of outstanding Accounts owed at such time by the Account
Debtor thereon which  constituted  Eligible Accounts at the time they arose are,
at any time of determination,  classified as ineligible under the other criteria
set forth herein or otherwise established by the Agent;

                          (vii)       owed by an Account Debtor which:  (i) does
not maintain its chief  executive  office in the United  States;  or (ii) is not
organized under the laws of the United States or any state thereof;  or (iii) is
the  government  of any foreign  country or  sovereign  state,  or of any state,
province,  municipality,  or  other  political  subdivision  thereof,  or of any
department, agency, public corporation, or other instrumentality thereof; except
to the  extent  that such  Account  is  secured or payable by a letter of credit
reasonably satisfactory to the Agent;

                      (viii)           owed by an Account Debtor which is an
Affiliate or employee of any Borrower;

                           (ix)    except as provided in (xi) below, as to which
either the perfection of the Agent's Lien in such Account,  or the Agent's right
or  ability  to  obtain  direct  payment  to the Agent of the  proceeds  of such
Account,  is governed by any federal,  state,  or local  statutory  requirements
other than those of the UCC;

                            (x)     which is owed by an Account Debtor to which
any  Borrower is indebted in any way, or which is subject to any right of setoff
or recoupment by the Account Debtor,  unless the Account Debtor has entered into
an agreement  acceptable to the Agent to waive setoff rights;  or if the Account
Debtor  thereon has  disputed  liability  or made any claim with  respect to any
other  Account due from such Account  Debtor;  but in each such case only to the
extent of such indebtedness, setoff, recoupment, dispute, or claim;

                           (xi)    which is owed by the government of the United
States of America,  or any  department,  agency,  public  corporation,  or other
instrumentality thereof, unless the Federal Assignment of Claims Act of 1940, as
amended (31 U.S.C.Code  3727 et seq.),  and any other steps necessary to perfect
the Agent's Lien  therein,  have been  complied  with to the Agent's  reasonable
satisfaction with respect to such Account;

                          (xii)     which is owed by any state, municipality, or
other political subdivision of the United States of America, or any


<PAGE>



department, agency, public corporation, or other instrumentality thereof and (A)
as to which  the  Agent  determines  that its Lien  therein  is not or cannot be
perfected or (B) to the extent that the amount thereof exceeds $4,000,000 in the
aggregate for all Borrowers;

                         (xiii)    which represents a sale on a guaranteed sale,
sale and return, sale on approval, consignment, or other repurchase
or return basis;

                          (xiv)      which is evidenced by a promissory note or
other instrument or by chattel paper;

                           (xv)        if the Agent believes, in the reasonable
exercise of its  judgment,  that the prospect of  collection  of such Account is
impaired or that the  Account may not be paid by reason of the Account  Debtor's
financial inability to pay;

                          (xvi)      with respect to which the Account Debtor is
located in any state  requiring  the filing of a Notice of  Business  Activities
Report or  similar  report  in order to permit  any  Borrower  to seek  judicial
enforcement  in such State of payment of such Account,  unless such Borrower has
qualified  to do  business  in such  state  or has  filed a Notice  of  Business
Activities Report or equivalent report for the then current year; or

                         (xvii)      which arises out of a sale not made in the
ordinary course of any Borrower's business;

                        (xviii)        except for Bill and Hold Accounts of
Forstmann,  as to which  the goods  giving  rise to such  Account  have not been
shipped and  delivered  to and  accepted by the Account  Debtor or the  services
giving rise to such Account have not been  performed  by any  Borrower,  and, if
applicable,  accepted by the Account  Debtor,  or the Account Debtor revokes its
acceptance of such goods or services;

                          (xix)      which is owed by an Account Debtor which is
obligated to any Borrower  respecting  Accounts the aggregate  unpaid balance of
which  exceeds  fifteen  percent  (15%)  (thirty  percent  (30%)  in the case of
Kellwood) of the aggregate  unpaid balance of all Accounts owed to such Borrower
at such time by all of such Borrower's  Account Debtors,  but only to the extent
of such excess;

                           (xx)      which arises out of an enforceable contract
or order which, by its terms, forbids,  restricts or makes void or unenforceable
the granting of a Lien by any Borrower to the Agent with respect to such Account
to the extent that any such provision is enforceable; or

                          (xxi)    which is not subject to a first priority and
perfected security interest in favor of the Agent for the benefit
of the Lenders.

         If any Account at any time  ceases to be an Eligible  Account by reason
of any of the foregoing  exclusions or any failure to meet any other eligibility
criteria established by the Agent in the


<PAGE>



reasonable  exercise of its credit  judgment then such Account shall promptly be
excluded from the calculation of Eligible Accounts.

                      "Eligible Bill and Hold Accounts" means Eligible
Accounts of Forstmann consisting of Bill and Hold Accounts.

                      "Eligible Letter of Credit Inventory" means inventory
which has not yet been received by any  Borrower,  but which has been or will be
consigned  for  shipment  to the Agent and is or will be in transit  directly to
such Borrower and not to any finisher or other bailee of such Borrower, and will
otherwise be Eligible Inventory  immediately upon receipt by such Borrower,  and
with respect to the purchase of which a Documentary  Letter of Credit (which may
only  be  drawn  against  by  the  presentation  of  customary  certificates  of
insurance,  shipping documents showing that such inventory is in transit to such
Borrower (if not already delivered to such Borrower) and documents of title with
respect to such inventory) has been issued or caused to be issued by the Agent.

                      "Eligible Inventory" means Inventory that constitutes
raw materials,  piece goods (in the case of FAI), work-in-process (to the extent
permitted  below)  and  finished  goods and that,  unless  the Agent in its sole
discretion elects: (a) is not, in the Agent's reasonable opinion, obsolete, slow
moving, or  unmerchantable;  (b) is located at premises owned by any Borrower or
on premises listed in Schedule  1.1(b)  otherwise  reasonably  acceptable to the
Agent or in transit from one such location to another;  (c) upon which the Agent
for the benefit of the Lenders has a first priority perfected security interest;
(d) is not spare parts,  trim  (excluding  any  interfacing,  taffeta and lining
purchased as piece goods), samples, packaging and shipping materials,  supplies,
bill-and-hold  Inventory,  returned or defective  Inventory (other than "second"
quality  Inventory),  or Inventory  delivered to any Borrower on  consignment or
approval;  (e) in the case of FAI, is not more than one (1) Season old;  and (f)
the Agent, in the reasonable exercise of its credit judgment,  deems eligible as
the basis for Revolving Loans and Letters of Credit based on such collateral and
credit criteria as the Agent may from time to time establish; provided, however,
that  any and all  (w)  work-in-process  of  FAI,  (x)  work-in-process  yarn of
Forstmann  whose   aggregate   value  exceeds   $12,000,000  at  any  time,  (y)
work-in-process   greige  goods  of  Forstmann  whose  aggregate  value  exceeds
$15,000,000  at any time, and (z) finished  goods of Forstmann  whose  aggregate
value exceeds $12,000,000 at any time, shall be excluded from the calculation of
Eligible  Inventory.  If  any  Inventory  at  any  time  ceases  to be  Eligible
Inventory,  such Inventory  shall  promptly be excluded from the  calculation of
Eligible Inventory.

                      "Environmental Compliance Reserve" means any reserves
which the  Agent,  after the  Closing  Date,  establishes  from time to time for
amounts that are  reasonably  likely to be expended by any Borrower in order for
such Borrower and its operations and property (a) to comply with any notice from
a Governmental  Authority  asserting material  non-compliance with Environmental
Laws, or (b) to correct any such material non-compliance  identified in a report
delivered to the Agent and the Lenders  pursuant to Section 9.7, in each case if
and to the extent that such non-compliance could have


<PAGE>



an adverse impact on any of the Collateral or could have a Material
Adverse Effect.

                      "Environmental Laws" means all federal, state or local
laws,  statutes,  rules,  regulations,  ordinances and codes,  together with all
administrative orders,  licenses,  authorizations and permits of, and agreements
with,  any  Governmental  Authority,  in each case  relating  to  environmental,
health, safety and land use matters.

                      "Environmental Lien" means a Lien in favor of any
Governmental  Authority for (1) any liability under any  Environmental  Laws, or
(2) damages  arising from, or costs incurred by such  Governmental  Authority in
response  to,  a  Release  or  threatened  Release  of a  Contaminant  into  the
environment.

                      "Equipment" means all of each Borrower's now owned and
hereafter acquired machinery, equipment, furniture,  furnishings,  fixtures, and
other tangible  personal property (except  Inventory),  including motor vehicles
with respect to which a certificate  of title has been issued,  aircraft,  dies,
tools,  jigs,  and office  equipment,  as well as all of such types of  property
leased by any  Borrower and all of such  Borrower's  rights and  interests  with
respect thereto under such leases  (including,  without  limitation,  options to
purchase);  together  with all  present  and  future  additions  and  accessions
thereto,  replacements therefor, component and auxiliary parts and supplies used
or to be used  in  connection  therewith,  and  all  substitutes  for any of the
foregoing, and all manuals, drawings,  instructions,  warranties and rights with
respect thereto; wherever any of the foregoing is located.

                      "ERISA" means the Employee Retirement Income Security
Act of  1974,  as  amended  from  time  to  time,  and  regulations  promulgated
thereunder.

                      "ERISA Affiliate" means any trade or business (whether
or not  incorporated)  under common control with any Borrower within the meaning
of Section  414(b) or (c) of the Code (and  Sections  414(m) and (o) of the Code
for purposes of provisions relating to Section 412 of the Code).

                      "ERISA Event" means (a) a Reportable Event with respect
to a Pension Plan; (b) a withdrawal by any Borrower or any ERISA  Affiliate from
a Pension  Plan  subject to Section 4063 of ERISA during a plan year in which it
was a  substantial  employer  (as defined in Section  4001(a)(2)  of ERISA) or a
cessation  of  operations  which is treated as such a withdrawal  under  Section
4062(e) of ERISA;  (c) a complete or partial  withdrawal  by any Borrower or any
ERISA Affiliate under Section 4203 or 4205 of ERISA from a  Multi-employer  Plan
or notification that a Multi-employer Plan is in reorganization;  (d) the filing
of a notice of intent to terminate,  the treatment of an ERISA Plan amendment as
a  termination  under  Section 4041 or 4041A of ERISA,  or the  commencement  of
proceedings by the PBGC to terminate a Pension Plan or Multi-employer  Plan; (e)
an event or condition which might reasonably be expected to constitute  grounds,
or  the  taking  of  any  steps  by  the  PBGC  concerning  the  institution  of
proceedings, for


<PAGE>



the termination  of, or the appointment of a trustee to administer,  any Pension
Plan or  Multi-employer  Plan,  in each case  under  Section  4042  (other  than
4042(a)(4)) of ERISA;  or (f) the imposition of any liability  under Title IV of
ERISA that would reasonably be expected to have a Material Adverse Effect, other
than PBGC premiums due but not delinquent under Section 4007 of ERISA,  upon any
Borrower or any ERISA Affiliate.

                      "ERISA Plan" means an employee benefit plan (as defined
in Section 3(3) of ERISA)  which any Borrower  sponsors or maintains or to which
any  Borrower  makes,  is making,  or is  obligated  to make  contributions  and
includes any Pension Plan.

                      "Event of Default" has the meaning specified in Section
11.1.

                      "Exchange Act" means the Securities Exchange Act of
1934, as amended from time to time, and regulations promulgated thereunder.

                      "Excess Cash Flow" means with respect to any Fiscal
Year of the Borrowers,  EBITDA (exclusive of any gain or loss on the disposition
of  assets)  minus  the  sum  of  (without  duplication)  (i)  interest  expense
(excluding in the  determination  of interest  expense the  amortization  of the
Facility Fee, and the Underwriting  Fee) of the Borrowers and all other fees and
expenses   incurred  by  Forstmann  in  connection  with  the  closing  of  this
transaction as contemplated  by this Agreement,  in each case during such Fiscal
Year, (ii) regularly  scheduled  payments and voluntary  prepayments on the Term
Loans or other Debt for Borrowed  Money (other than any  repayment of any of the
Senior  Secured  Notes (as  defined in the  Disclosure  Statement)  or  Deferred
Interest Notes from the proceeds of a sale of the Tifton Facility (as defined in
the  Disclosure  Statement))  during such Fiscal Year to the extent made,  (iii)
Capital Expenditures and MIS Expenditures made during such Fiscal Year, (iv) the
aggregate  amount of income  taxes paid by any  Borrower in cash for such Fiscal
Year  and  (v)  Distributions,  if any,  to the  extent  specifically  permitted
hereunder for such Fiscal Year.

                      "Facility Fee" has the meaning specified in Section
3.4.

                      "FAI" has the meaning specified in the introductory
paragraph hereof.

                      "Federal Funds Rate" means, for any day, the rate set
forth  in  the  weekly  statistical  release  designated  as  H.15(519),  or any
successor  publication,  published  by the  Federal  Reserve  Bank  of New  York
(including  any such  successor,  "H.15(519)")  on the  preceding  Business  Day
opposite the caption  "Federal Funds  (Effective)";  or, if for any relevant day
such rate is not so published on any such  preceding  Business Day, the rate for
such day will be the arithmetic mean as determined by the Agent of the rates for
the last transaction in overnight Federal funds arranged prior to 9:00 a.m. (New
York City time) on that day by each of three


<PAGE>



leading  brokers of Federal funds  transactions in New York City selected by the
Agent.

                      "Federal Reserve Board" means the Board of Governors of
the Federal Reserve System or any successor thereto.

                      "Fee Agreement" means the letter agreement dated as of
the date hereof  between the Agent and the Borrowers with respect to the payment
of certain fees described therein.

                      "Final Order" means an order or judgment, the operation
or effect of which has not been  stayed,  and as to which order or judgment  (or
any revision,  modification  or amendment  thereof),  the time to appeal or seek
review or rehearing has expired and as to which no appeal or petition for review
or rehearing has been taken or is pending.

                      "Financial Statements" means, according to the context
in which it is used, the financial  statements referred to in Section 8.6 hereof
or any other financial  statements  required to be given to the Lenders pursuant
to this Agreement.

                      "Fiscal Year" means the Borrowers' fiscal year for
financial accounting purposes.  The current Fiscal Year of the
Borrowers will end on November 1, 1998.

                      "Fixed Assets" means Equipment and Real Estate of any
Borrower.

                      "Fixed Charge Coverage Ratio" means, for the Borrowers,
determined  on a  consolidated  basis,  for any  period,  the  ratio  of (i) the
difference  of (v) EBITDA for such  period  minus (w) Capital  Expenditures  not
financed by third  parties  during such period to (ii) the sum of (x) total cash
interest  expense  during such period  plus (y) total debt  service  during such
period plus (2) cash tax expense during such period.

                      "Forstmann" has the meaning specified in the
introductory paragraph hereof.

                      "Funding Date" means the date on which a Borrowing
occurs.

                      "GAAP" means generally accepted accounting principles
set forth from time to time in the opinions and pronouncements of the Accounting
Principles Board and the American  Institute of Certified Public Accountants and
statements and  pronouncements of the Financial  Accounting  Standards Board (or
agencies with similar  functions of comparable  stature and authority within the
U.S. accounting profession), which are applicable to the circumstances as of the
Closing Date.

                      "General Intangibles" means all of each Borrower's now
owned or hereafter acquired general intangibles,  choses in action and causes of
action and all other intangible personal property of such Borrower of every kind
and nature (other than Accounts),  including,  without limitation,  all contract
rights, Proprietary


<PAGE>



Rights, corporate or other business records,  inventions,  designs,  blueprints,
plans, specifications,  patents, patent applications, trademarks, service marks,
trade names, trade secrets, goodwill,  copyrights,  computer software,  customer
lists, registrations,  licenses,  franchises, tax refund claims, any funds which
may become due to such Borrower in connection  with the termination of any ERISA
Plan or other employee  benefit plan or any rights thereto and any other amounts
payable to such  Borrower  from any ERISA Plan or other  employee  benefit plan,
rights and claims  against  carriers and  shippers,  rights to  indemnification,
business interruption insurance and proceeds thereof, property,  casualty or any
similar  type of  insurance  and any  proceeds  thereof,  proceeds of  insurance
covering the lives of key employees on which such Borrower is  beneficiary,  and
any letter of credit, guarantee, claim, security interest or other security held
by or granted to any Borrower.

                      "Governmental Authority" means any nation or
government,  any state or other political  subdivision thereof, any central bank
(or similar monetary or regulatory  authority)  thereof,  any entity  exercising
executive,  legislative,  judicial, regulatory or administrative functions of or
pertaining  to  government,  and  any  corporation  or  other  entity  owned  or
controlled,  through  stock or capital  ownership  or  otherwise,  by any of the
foregoing.

                      "Guaranty" means, with respect to any Person, all
obligations of such Person which in any manner directly or indirectly  guarantee
or assure,  or in effect guarantee or assure,  the payment or performance of any
indebtedness, dividend or other obligations of any other Person (the "guaranteed
obligations"),  or assure  or in  effect  assure  the  holder of the  guaranteed
obligations against loss in respect thereof, including,  without limitation, any
such obligations incurred through an agreement,  contingent or otherwise: (a) to
purchase  the  guaranteed  obligations  or any  property  constituting  security
therefor;  (b) to advance  or supply  funds for the  purchase  or payment of the
guaranteed  obligations or to maintain a working  capital or other balance sheet
condition; or (c) to lease property or to purchase any debt or equity securities
or other property or services.

                      "Indenture Trustee" means State Street Bank and Trust
Company,  in its capacity as trustee under an Indenture of Trust dated as of the
Effective  Date  between  State  Street  Bank and Trust  Company  and  Forstmann
pursuant to which Forstmann has issued Deferred Interest Notes.

                      "Intercompany Accounts" means all assets and
liabilities,  however arising, which are due to any Borrower from, which are due
from any  Borrower  to, or which  otherwise  arise from any  transaction  by any
Borrower with, any Affiliate.

                      "Interest Coverage Ratio" means, for the Borrowers,
determined on a consolidated  basis, for any period, the ratio of (i) EBITDA for
such period to (ii) total cash interest expense during such period.

                      "Interest Period" means, as to any LIBOR Rate Loan, the
period commencing on the Funding Date of such Loan or on the


<PAGE>



Conversion/Continuation Date on which the Loan is converted into or continued as
a LIBOR Rate Loan,  and ending on the date one, two, or three months  thereafter
as   selected  by   Forstmann   in  any  Notice  of   Borrowing   or  Notice  of
Conversion/Continuation; provided that:

                            (i)    if any Interest Period would otherwise end on
a day that is not a Business Day, that Interest  Period shall be extended to the
following  Business  Day unless the result of such  extension  would be to carry
such Interest  Period into another  calendar month, in which event such Interest
Period shall end on the preceding Business Day;

                           (ii)        any Interest Period pertaining to a LIBOR
Rate Loan that begins on the last Business Day of a calendar  month (or on a day
for which there is no numerically corresponding day in the calendar month at the
end of such Interest  Period) shall end on the last Business Day of the calendar
month at the end of such Interest Period; and

                          (iii)     no Interest Period shall extend beyond the
Stated Termination Date.

                      "Interest Rate" means each or any of the interest
rates, including the Default Rate, set forth in Section 3.1.

                      "Inventory" means all of each Borrower's now owned and
hereafter acquired  inventory,  goods and merchandise,  wherever located,  to be
furnished under any contract of service or held for sale or lease,  all returned
goods,  raw  materials,  other  materials  and  supplies of any kind,  nature or
description  which are or might be consumed in such Borrower's  business or used
in connection with the packing, shipping,  advertising,  selling or finishing of
such goods,  merchandise and such other personal property,  and all documents of
title or other documents representing them.

                      "IRS" means the Internal Revenue Service and any
Governmental  Authority  succeeding to any of its principal  functions under the
Code.

                      "Latest Projections" means:  (a) on the Closing Date
and  thereafter  until the Agent  receives new  projections  pursuant to Section
7.2(f),  the  projections of each  Borrower's  financial  condition,  results of
operations,  and cash flow,  for the period  commencing  on November 3, 1997 and
ending on November 2, 1998 and delivered to the Agent prior to the Closing Date;
and (b) thereafter, the projections most recently received by the Agent pursuant
to Section 7.2(f).

                      "Lender" and "Lenders" have the meanings specified in
the  introductory  paragraph hereof and shall include the Agent to the extent of
any  Agent  Advance  outstanding  and  BABC  to  the  extent  of any  BABC  Loan
outstanding;  provided  that no such  Agent  Advance or BABC Loan shall be taken
into account in determining any Lender's Pro Rata Share.



<PAGE>



                      "Letter of Credit" means a letter of credit issued or
caused to be issued for the account of any Borrower pursuant to
Section 2.4.

                      "Letter of Credit Fee" has the meaning specified in
Section 3.6.

                      "Letter of Credit Subfacility" means that portion of
the Maximum  Revolver Amount  available for the issuance of Letters of Credit in
an aggregate amount outstanding at any time not to exceed $15,000,000.

                      "LIBOR Rate" means, for any Interest Period, with
respect to LIBOR Rate Loans  comprising part of the same Borrowing,  the rate of
interest per annum (rounded  upward to the next 1/1000th of 1.0%)  determined by
the Agent as follows:


FUNC{LIBOR~Rate~=~{LIBOR OVER {1.00~-~Eurodollar~Reserve~Percentage}}}



Where,

                              "Eurodollar  Reserve Percentage" means for any day
                      for any  Interest  Period the maximum  reserve  percentage
                      (expressed  as a  decimal,  rounded  upward  to  the  next
                      1/100th  of 1%) in  effect  on such  day  (whether  or not
                      applicable  to any Lender) under  regulations  issued from
                      time to time by the Federal  Reserve Board for determining
                      the maximum reserve requirement  (including any emergency,
                      supplemental or other marginal reserve  requirement)  with
                      respect to Eurocurrency  funding (currently referred to as
                      "Eurocurrency liabilities"); and

                              "LIBOR"  means  the  rate of  interest  per  annum
                      (rounded  upward to the next 1/16th of 1%) notified to the
                      Agent by Bank of America as the rate of  interest at which
                      dollar deposits in the  approximate  amount of the Loan to
                      be made or continued  as, or converted  into, a LIBOR Rate
                      Loan and having a  maturity  comparable  to such  Interest
                      Period  would be offered by Bank of  America's  applicable
                      lending  office to major  banks in the  London  eurodollar
                      market  at  approximately  11:00  a.m.  (London  time) two
                      Business Days prior to the  commencement  of such Interest
                      Period.

                      "LIBOR Rate Loans" means, collectively, the LIBOR
Revolving Loans and the LIBOR Term Loans.

                      "LIBOR Revolving Loan" means a Revolving Loan during
any period in which it bears interest based on the LIBOR Rate.


<PAGE>



                      "LIBOR Term Loan" means any portion of a Term Loan
during any period in which such portion bears interest based on the LIBOR Rate.

                      "Lien" means:  (a) any interest in property securing an
obligation  owed  to,  or a claim  by,  a Person  other  than  the  owner of the
property,  whether  such  interest  is  based on the  common  law,  statute,  or
contract, and including without limitation, a security interest,  charge, claim,
or  lien  arising  from  a  mortgage,  deed  of  trust,   encumbrance,   pledge,
hypothecation,  assignment, deposit arrangement,  agreement, security agreement,
conditional  sale or trust  receipt  or a lease,  consignment  or  bailment  for
security  purposes;  and (b) to the extent not  included  under  clause (a), any
reservation,   exception,   encroachment,   easement,  right-of-way,   covenant,
condition,  restriction, lease or other title exception or encumbrance affecting
property.

                      "Loan Account" means any loan account of any Borrower
established  and  maintained  by the Agent on its books in  connection  with the
transactions contemplated by this Agreement and the other Loan Documents.

                      "Loan Documents" means this Agreement, the Term Loan
Notes, the Patent and Trademark Agreements, the Pledge Agreement, the Mortgages,
the Fee Agreement, all documents pertaining to any Credit Support, and any other
agreements,  instruments, and documents heretofore, now or hereafter evidencing,
securing, guaranteeing or otherwise relating to the Obligations, the Collateral,
or any other aspect of the transactions contemplated by this Agreement.

                      "Loans" means, collectively, all loans, advances and
participation in Letters of Credit and Credit Support provided for
in Article 2.

                      "Majority Lenders" means at any time Lenders whose Pro
Rata shares aggregate more than 66 2/3% of the Commitments or, if no Commitments
shall then be in  effect,  Lenders  who hold more than 66 2/3% of the  aggregate
principal amount of the Loans then outstanding.

                      "Margin Stock" means "margin stock" as such term is
defined in Regulation G, T, U  or X of the Federal Reserve Board.

                      "Material Adverse Effect" means (a) a material adverse
change  in,  or a  material  adverse  effect  upon,  the  operations,  business,
properties, condition (financial or otherwise) or prospects of the Borrowers, on
a  consolidated  basis  taken  as a whole,  or the  Collateral;  (b) a  material
impairment of the ability of the Borrowers,  on a consolidated  basis taken as a
whole, to perform under any Loan Document and to avoid any Event of Default;  or
(c) a material  adverse  effect upon the legality,  validity,  binding effect or
enforceability against the Borrowers,  on a consolidated basis taken as a whole,
of any Loan Document.

                      "Maximum Rate" has the meaning specified in Section
3.3.


<PAGE>



                      "Maximum Revolver Amount" means, at any time,
$85,000,000.

                      "MIS Expenditures" means any deferred and capitalized
cash  expenditures  made by any Borrower in connection  with the acquisition and
development  of computer  hardware and software for such  Borrower's  management
information systems.

                      "Mortgages" means all real property fee mortgages,
leasehold  mortgages,  assignments of leases,  mortgage  deeds,  deeds of trust,
deeds to secure debt, security agreements, and other similar instruments entered
into in connection  with the Original Loan  Agreement or this  Agreement and now
and  hereafter  entered into by any Borrower  which  provide the Agent,  for the
benefit  of the  Lenders,  a Lien on or other  interest  in any  portion  of the
Premises or the Real Estate or which relate to any such Lien or interest.

                      "Multi-employer Plan" means a "multi-employer plan" as
defined in Section  4001(a)(3)  of ERISA  which is or was at any time during the
current year or the  immediately  preceding six (6) years  contributed to by any
Borrower or any ERISA Affiliate.

                      "Net Amount of Eligible Accounts" means, at any time,
the gross amount of Eligible  Accounts less sales,  excise or similar taxes, and
less returns,  discounts,  claims,  credits and  allowances of any nature at any
time issued, owing, granted, outstanding or available.

                      "1998-1999 Extraordinary Charges" means any of the
following   items,  to  the  extent  that  such  item  would  be  treated  as  a
restructuring expense or an operating expense in accordance with GAAP:

                      (i) writedowns or other adjustments to the value of any of
         Forstmann's  assets  (other  than  current  assets),  caused by (A) the
         discontinuation by such Borrower of its top dye worsted operations, (B)
         the  relocation  by such  Borrower of its package dye  operations  from
         Milledgeville,  Georgia to Dublin,  Georgia, (C) the relocation by such
         Borrower of certain of its finishing equipment from Dublin,  Georgia to
         Louisville,  Georgia  and (D) the  reduction  by such  Borrower  of its
         worsted operations;

                      (ii)  writedowns or other  adjustments to the value of any
         of Forstmann's Inventory relating to its worsted operations,  including
         such  writedowns or other  adjustments to Inventory  consisting of yarn
         caused by the reduction by such Borrower of its worsted operations;

                      (iii)  costs  incurred by  Forstmann  in  connection  with
         moving from  Milledgeville,  Georgia to Dublin,  Georgia certain of its
         yarn dyeing and warp  preparation  equipment  and moving  from  Dublin,
         Georgia to Louisville, Georgia certain of its finishing equipment; and

                      (iv)  severance  and "stay put" payments made by Forstmann
         to its salaried and hourly employees in connection


<PAGE>



         with the actions  described  in clauses  (i),  (ii) and (iii) above and
         payments made and charges taken by such Borrower in connection with the
         partial  termination  of its ERISA Plan  related to such  salaried  and
         hourly employees;

provided that: (a) such items arise, in each case above,  during the Fiscal Year
ending in 1998 and,  in the case of  clauses  (i)(B),  (i)(C)  and (iii)  above,
during the Fiscal Year ending in 1998 or 1999; (b) such items do not exceed,  in
the case of clauses (i)(B), (i)(C) and (iii) above, $1,000,000 in the aggregate;
and (c) such items do not exceed,  in the case of clause (ii) above,  $3,500,000
in the aggregate.

                      "Notice of Borrowing" has the meaning specified in
Section 2.2(b).

                      "Notice of Conversion/Continuation" has the meaning
specified in Section 3.2(b).

                      "Obligations" means all present and future loans,
advances, liabilities,  obligations,  covenants, duties, and debts owing by each
of the  Borrowers to the Agent and/or any Lender,  arising  under or pursuant to
this Agreement or any of the other Loan  Documents,  whether or not evidenced by
any note, or other instrument or document,  whether arising from an extension of
credit,   opening  of  a  letter  of   credit,   acceptance,   loan,   guaranty,
indemnification  or otherwise,  whether direct or indirect  (including,  without
limitation,  those acquired by assignment from others,  and any participation by
the Agent and/or any Lender in any Borrower's  debts owing to others),  absolute
or  contingent,  due or to become due,  primary or  secondary,  as  principal or
guarantor, and including, without limitation, all principal,  interest, charges,
expenses,  fees,  attorneys' fees,  filing fees and any other sums chargeable to
any Borrower  hereunder or under any of the other Loan Documents.  "Obligations"
includes, without limitation, (a) all debts, liabilities, and obligations now or
hereafter  owing from any  Borrower to the Agent  and/or any Lender  under or in
connection  with the  Letters  of  Credit  or  Credit  Support,  (b) all  debts,
liabilities  and  obligations  now or  hereafter  owing from any Borrower to the
Agent and  Lenders  arising  from or  related  to ACH  Transactions  and (c) all
interest  and all  other  amounts  referred  to above,  on the  terms  provided,
accruing after the filing of any proceeding  under any  bankruptcy,  insolvency,
reorganization or similar law.

                      "Original Closing Date" means the "Closing Date," as
that term was defined in the Original Loan Agreement.

                      "Original Lenders" has the meaning specified in the
recitals hereof.

                      "Original Loan Agreement" has the meaning specified in
the introductory paragraph hereof.

                      "Other Taxes" means any present or future stamp or
documentary  taxes or any other  excise or  property  taxes,  charges or similar
levies which arise from any payment made hereunder or from


<PAGE>



the execution,  delivery or registration  of, or otherwise with respect to, this
Agreement or any other Loan Documents.

                      "Participant" means any Person who shall have been
granted the right by any Lender to participate in the financing provided by such
Lender under this  Agreement,  and who shall have  entered into a  participation
agreement in form and substance satisfactory to such Lender.

                      "Patent and Trademark Agreements" means the Patent
Security  Agreement and the Trademark Security  Agreement,  each dated as of the
date of the Original Loan Agreement,  executed and delivered by Forstmann to the
Agent to evidence and perfect the Agent's security interest,  to the extent such
security  interest  may be  granted,  in any of  Forstmann's  present and future
patents,  trademarks,  and related  licenses and rights,  for the benefit of the
Agent and the Lenders and other similar  instruments  entered into in connection
with the Original Loan Agreement or this Agreement and now and hereafter entered
into  between  any  Borrower  and the Agent for the benefit of the Agent and the
Lenders.

                      "Payment Account" means each blocked bank account
established  pursuant  to  Section  6.9,  to which  the  funds  of any  Borrower
(including,  without limitation,  proceeds of Accounts and other Collateral) are
deposited or credited,  and which is  maintained  in the name of any Borrower on
terms reasonably acceptable to the Agent.

                      "PBGC" means the Pension Benefit Guaranty Corporation
or any Governmental Authority succeeding to the functions thereof.

                      "Pending Revolving Loans" means, at any time, the
aggregate  principal amount of all Revolving Loans requested in any Notice(s) of
Borrowing received by the Agent which have not yet been advanced.

                      "Pension Plan" means a pension plan (as defined in
Section  3(2) of ERISA)  subject to Title IV of ERISA which any  Borrower or any
ERISA Affiliate  sponsors,  maintains,  or to which it makes,  is making,  or is
obligated to make  contributions,  or in the case of a  Multi-employer  Plan has
made  contributions  at any time during the immediately  preceding five (5) plan
years.

                      "Permitted Liens" means:

                      (i)     Liens existing on the Closing Date and described
on Schedule 1.1(c);

                           (ii)        Liens for taxes, assessments or other
charges, the non-payment of which is permitted under Section 9.1.

                          (iii)        the Agent's Liens;

                           (iv)        deposits under worker's compensation,
unemployment insurance, social security and other similar laws, or to secure the
performance  of bids,  tenders or  contracts  (other than for the  repayment  of
borrowed money) or to secure indemnity,


<PAGE>



performance  or other  similar  bonds for the  performance  of bids,  tenders or
contracts  (other  than  for the  repayment  of  borrowed  money)  or to  secure
statutory  obligations  (other than Liens arising  under ERISA or  Environmental
Liens) or surety or appeal bonds, or to secure  indemnity,  performance or other
similar bonds in the ordinary course of business;

                            (v)        Liens securing the claims or demands of
materialmen, mechanics, carriers, warehousemen, landlords and other like Persons
created in the ordinary course of business and arising in respect of claims, the
non-payment of which is permitted under Section 9.1.

                           (vi)        reservations, exceptions, encroachments,
easements,  rights of way,  covenants  running with the land,  and other similar
title exceptions or encumbrances  affecting any Real Estate;  provided that they
do not in the aggregate  materially detract from the value of the Real Estate or
materially  interfere  with its use in the  ordinary  conduct of any  Borrower's
business;

                          (vii)     judgment and other similar Liens arising in
connection with court proceedings to the extent the attachment or enforcement of
such Liens would not result in an Event of Default hereunder;

                      (viii)      any interest or title of a lessor, or secured
by a lessor's interest, under any lease permitted by this
Agreement;

                      (ix) Liens (including the interest of a lessor under a
Capital  Lease) to which any  Property is subject at the time of any  Borrower's
acquisition  thereof or within 12 months thereafter,  securing Debt for Borrowed
Money  permitted  under  Section  9.13  arising in respect  of, or  incurred  to
finance, the purchase or lease of such Property; provided that in each case, (w)
such  Lien  does not  extend  or cover or  include  any  other  Property  of any
Borrower,  (x) the fair market value of the Property  subject to such Lien is no
less than the principal  amount of the Debt for Borrowed  Money to be secured by
such Lien, (y) such Lien secures only such permitted Debt for Borrowed Money and
no other Debt for Borrowed  Money of such Borrower and (z) such Lien is promptly
released upon the payment in full of such Debt for Borrowed Money;

                      (x)     to the extent Debt for Borrowed Money secured
thereby is permitted to be extended, renewed, replaced or refinanced pursuant to
Section  9.13,  a future  Lien  upon any  Property  which is  subject  to a Lien
described in clause (ix) above,  if such future Lien  attaches  only to the same
Property,  secures only such permitted  extensions,  renewals,  replacements  or
refinancings and is of like quality, character and extent.

                      "Permitted Rentals" has the meaning specified in
Section 9.24.

                      "Person" means any individual, sole proprietorship,
partnership, joint venture, trust, unincorporated organization,


<PAGE>



association, corporation, Governmental Authority, or any other
entity.

                      "Plan of Reorganization" means Forstmann's First
Amended Plan of Reorganization,  dated May 14, 1997, as filed with and confirmed
by order of the Bankruptcy Court.

                      "Pledge Agreement" means collectively (a) the pledge
agreement,  dated as of the date of the Original  Loan  Agreement,  executed and
delivered by Forstmann,  as pledgor, to the Agent, as pledgee,  substantially in
the  form of  Exhibit  I, to  evidence  the  Agent's  security  interest  in the
Restricted  Investments  constituting  promissory notes or securities and rights
related  thereto,  for the benefit of the Agent and the Lenders;  (b) the pledge
agreement,  dated as of the date  hereof,  executed  and  delivered  by FAI,  as
pledgor,  to Agent,  as  pledgee,  substantially  in the form of  Exhibit  H, to
evidence Agent's security  interest in the Restricted  Investments  constituting
promissory  notes or securities and rights related  thereto,  for the benefit of
the Agent and the Lenders;  and (c) the pledge  agreement,  dated as of the date
hereof,  executed and delivered by Forstmann,  as pledgor, to Agent, as pledgee,
substantially in the Form of Exhibit J, to evidence Agent's security interest in
the shares of FAI owned by Forstmann  and its rights  related  thereto,  for the
benefit of the Agent and the Lenders.

                      "Premises" means the land identified by addresses on
Schedule 8.12, together with all buildings,  improvements,  and fixtures thereon
and all  tenements,  hereditaments,  and  appurtenances  belonging or in any way
appertaining  thereto,  and which  constitutes all of the real property in which
any Borrower has any interests on the Closing Date.

                      "Promotional Reserve" means any and all reserves which
the Agent from time to time establishes, in its sole discretion, with respect to
liabilities  or  obligations  of any Borrower in  connection  with  advertising,
promotions, mark-downs, sales or discounts.

                      "Pro Rata Share" means, with respect to a Lender, a
fraction  (expressed as a  percentage),  the numerator of which is the amount of
such Lender's  Commitment and the denominator of which is the sum of the amounts
of all of the Lenders'  Commitments,  or if no Commitments  are  outstanding,  a
fraction  (expressed as a  percentage),  the numerator of which is the amount of
Obligations  owed to such Lender and the  denominator  of which is the aggregate
amount of the Obligations owed to the Lenders.

                      "Property" means any real or personal property, plant,
building, facility,  structure,  underground storage tank, equipment or unit, or
other  asset  owned,  leased or  operated by any  Borrower,  including,  without
limitation, such Borrower's Equipment, Inventory, and Real Estate.

                      "Proprietary Rights" means any Borrower's now owned and
hereafter arising or acquired:  licenses, franchises, permits,
patents, patent rights, copyrights, works which are the subject


<PAGE>



matter of  copyrights,  trademarks,  service marks,  trade names,  trade styles,
patent,  trademark  and service mark  applications,  and all licenses and rights
related to any of the foregoing,  including,  without limitation, those patents,
trademarks, service marks, trade names and copyrights set forth on Schedule 8.13
hereto,  and all  other  rights  under  any of the  foregoing,  all  extensions,
renewals, reissues, divisions,  continuations,  and continuations-in-part of any
of  the  foregoing,  and  all  rights  to  sue  for  past,  present  and  future
infringement of any of the foregoing.

                      "Real Estate" means all of the present and future
interests of each Borrower,  as owner,  lessee,  or otherwise,  in the Premises,
including,  without limitation,  any interest arising from an option to purchase
or lease the Premises or any portion thereof.

                      "Release" means a release, spill, emission, leaking,
pumping,  injection,  deposit,  disposal,  discharge,   dispersal,  leaching  or
migration of a Contaminant into the indoor or outdoor environment or into or out
of any Real Estate or other  property,  including  the movement of  Contaminants
through or in the air, soil, surface water,  groundwater or Real Estate or other
property.

                      "Rentals" has the meaning specified in Section 9.24.

                      "Reorganization Charges" means all expenses properly
classified as reorganization items in accordance with GAAP,  including,  without
limitation, all fees, costs and expenses,  including,  without limitation, legal
and other  professional  fees and expenses,  incurred by Forstmann in connection
with the Plan of Reorganization and the transactions  contemplated  thereby, and
limited to, (i) for the Borrowers on a consolidated basis,  $3,800,000 (of which
no more than  $1,200,000  may consist of cash  expenses)  during the Fiscal Year
ending on November 2, 1998, and  $1,000,000  (provided that such amount shall be
limited  to  the  amount  of  machinery  and  equipment  included  in  1998-1999
Extraordinary  Charges)  during the Fiscal Year Ending on November 2, 1999,  and
(ii) in the case of FAI individually, $400,000 in the aggregate.

                      "Reportable Event" means, any of the events set forth
in Section 4043(b) of ERISA or the regulations  thereunder,  other than any such
event for which the 30-day  notice  requirement  under  ERISA has been waived in
regulations issued by the PBGC.

                      "Requirement of Law" means, as to any Person, any law
(statutory  or  common),  treaty,  rule or  regulation  or  determination  of an
arbitrator or of a Governmental Authority, in each case applicable to or binding
upon the  Person or any of its  property  or to which  the  Person or any of its
property is subject.

                      "Responsible Officer" means the chief executive
officer,  president or chief  financial  officer of any  Borrower,  or any other
officer having  substantially  the same authority and  responsibility;  or, with
respect to  compliance  with  financial  covenants  and the  preparation  of the
Borrowing Base Certificate, the chief financial officer, treasurer or controller
of any


<PAGE>



Borrower,  or any other  officer  having  substantially  the same  authority and
responsibility.

                      "Restricted Investment" means any acquisition of
property by any Borrower in exchange for cash or other property,  whether in the
form of an acquisition of stock, debt, or other  indebtedness or obligation,  or
the purchase or acquisition of any other property,  or a loan, advance,  capital
contribution,  or  subscription,  except  acquisitions  of  the  following:  (a)
Property to be used in the business of any  Borrower so long as the  acquisition
costs thereof  constitute  Capital  Expenditures or MIS  Expenditures  permitted
hereunder;  (b) Inventory in the ordinary course of business; (c) current assets
arising  from the sale or lease of goods or the  rendition  of  services  in the
ordinary course of business of any Borrower; (d) acquisitions of Property in the
ordinary  course  of  business  consistent  with  past  practices,   other  than
acquisitions  of stock,  debt or all or any  material  amount  of the  assets of
another Person; (e) Restricted  investments  consisting of advances to employees
of any  Borrower for travel  expenses,  relocation  and similar  purposes in the
ordinary  course of business in amounts not to exceed $150,000 to any individual
employee at any time  outstanding  or $750,000 to all employees of all Borrowers
in the aggregate at any time  outstanding;  (f) Restricted  Investments  arising
from the  conversion of Accounts which are over ninety (90) days past due and in
any event are not Eligible Accounts into (i) securities consisting of promissory
notes if the  aggregate  face value of such Accounts with respect to any Account
Debtor at any time held as such  securities  does not exceed $1 million  and the
aggregate  face  value of all such  Accounts  held as such  securities  does not
exceed $3 million outstanding at any one time and (ii) securities  consisting of
a combination  of promissory  notes and capital stock of the Account  Debtors if
the aggregate face value of such Accounts with respect to any one Account Debtor
at any time held as such  securities  does not exceed $500,000 and the aggregate
face value of all such  Accounts  at any time held as such  securities  does not
exceed $2 million;  provided  that in each case the  securities  into which such
Accounts are converted shall be pledged and, upon the Agent's request, delivered
to  the  Agent,  for  the  benefit  of  the  Lenders,  in  a  manner  reasonable
satisfactory to the Agent;  (g) the creation and  establishment  by Forstmann of
FAI and the  acquisition by FAI of  substantially  all of the assets and certain
liabilities of Arenzano and BBC; (h) Restricted Investments,  in addition to the
Restricted  Investments  permitted by the other  subdivisions of this definition
other  than as  described  in  subdivision  (e),  in an amount  not to exceed $3
million in the aggregate;  and (i) if no Revolving  Loans are then  outstanding,
(1) direct  obligations of the United States of America,  or any agency thereof,
or  obligations  guaranteed by the United States of America,  provided that such
obligations  mature within one year from the date of  acquisition  thereof;  (2)
certificates  of deposit  maturing within one year from the date of acquisition,
bankers'  acceptances,  Eurodollar bank deposits, or overnight bank deposits, in
each case issued by, created by, or with a bank or trust company organized under
the laws of the United  States or any state thereof  having  capital and surplus
aggregating at least  $100,000,000;  and (3) commercial  paper given a rating of
"A2" or better by Standard & Poor's  Ratings  Group or "P2" or better by Moody's
Investors


<PAGE>



Service, Inc. and maturing not more than 90 days from the date of
creation thereof;

                      "Revolver Outstandings" means, at any time, with
respect to any Borrower (without duplication): the sum of (a) the unpaid balance
of Revolving  Loans made to such Borrower,  (b) the aggregate  amount of Pending
Revolving  Loans to such  Borrower,  excluding,  in the case of a request  for a
Borrowing, the amount of such Borrowing being requested, (c) one hundred percent
(100%) of the aggregate undrawn face amount of all outstanding Letters of Credit
issued for the account of such Borrower,  (d) the aggregate amount of any unpaid
reimbursement obligations in respect of Letters of Credit issued for the account
of such  Borrower and (e) the  aggregate  maximum  amount  available for drawing
under Letters of Credit  requested by such  Borrower,  the issuance of which has
been  authorized by the Agent  pursuant to Section 2.4(d) but which have not yet
been issued, in each case as determined by the Agent.

                      "Revolving Credit Facility" has the meaning specified
in Section 2.1.

                      "Revolving Credit Commitment" means, with respect to
each Lender,  the amount set forth beside such  Lender's  name under the heading
"Revolving Credit Commitment" on the signature pages of this Agreement or in the
Assignment  and  Acceptance  pursuant  to  which  such  Lender  became  a Lender
hereunder in accordance  with the  provisions of Section 13.3, as such Revolving
Credit  Commitment  may be  adjusted  from time to time in  accordance  with the
provisions of Section 13.3.

                      "Revolving Loans" has the meaning specified in Section
2.2 and includes each Agent Advance and BABC Loan.

                      "Season" means any period (i) from January 1 through
June 30, or (ii) from July 1 through December 31.

                      "Settlement" and "Settlement Date" have the meanings
specified in Section 2.2(j)(i).

                      "Solvent" means when used with respect to any Person
that at the time of determination:

                            (i)        the assets of such Person, at a fair
valuation, are in excess of the total amount of its debts
(including, without limitation, contingent liabilities); and

                           (ii)    the present fair saleable value of its assets
is greater than its probable liability on its existing debts as
such debts become absolute and matured; and

                          (iii)    it is then able and expects to be able to pay
its debts (including, without limitation, contingent debts and
other commitments) as they mature; and

                           (iv)        it has capital sufficient to carry on its
business as conducted and as proposed to be conducted.



<PAGE>



For  purposes  of  determining  whether a Person is  Solvent,  the amount of any
contingent  liability  shall be computed as the amount that, in light of all the
facts and  circumstances  existing at such time,  represents the amount that can
reasonably be expected to become an actual or matured liability.

                      "Standby Letter of Credit" means any Letter of Credit
other than a Documentary Letter of Credit.

                      "Stated Termination Date" means July 23, 2000.


                      "Subsidiary" of a Person means any corporation,
association,  partnership,  joint venture or other business entity of which more
than fifty percent  (50%) of the voting stock or other equity  interests (in the
case of Persons other than  corporations),  is owned or  controlled  directly or
indirectly by the Person, or one or more of the Subsidiaries of the Person, or a
combination thereof.

                      "Supporting Letter of Credit" has the meaning specified
in Section 2.4(j).

                      "Taxes" means any and all present or future taxes,
levies, imposts, deductions,  charges or withholdings,  and all liabilities with
respect thereto, excluding, in the case of each Lender and the Agent, such taxes
(including  income  taxes or  franchise  taxes) as are imposed on or measured by
each Lender's net income,  or the net income of a lending  office of such Lender
or the Agent, and all taxes on doing business or taxes measured by or imposed on
the overall capital or net worth of any Lender or the Agent, or a lending office
of  either,  in  each  case  imposed  by  the  jurisdiction  (or  any  political
subdivision  thereof)  under the laws of which such Lender or the Agent,  as the
case may be, is  organized  or  maintains  a lending  office or by reason of any
connection  between the  jurisdiction  imposing  such tax and such Lender or its
lending  office other than a connection  arising  solely from such Lender having
executed,  delivered or performed its  obligations  under,  or received  payment
under or enforced this Agreement or any Loan Document.

                      "Term Loan" and "Term Loans" have the meanings
specified in Section 2.3(a).

                      "Term Loan Commitment" means, with respect to each
Lender,  the amount set forth beside such  Lender's name under the heading "Term
Loan  Commitment" on the signature  pages of this Agreement or in the Assignment
and  Acceptance  pursuant  to which such  Lender  became a Lender  hereunder  in
accordance with the provisions of Section 13.3, as such Term Loan Commitment may
be adjusted from time to time in accordance with the provisions of Section 13.3.

                      "Term Loan Note" and "Term Loan Notes" have the
meanings specified in Section 2.3(c).



<PAGE>



                      "Termination Date" means the earliest to occur of (i)
the Stated  Termination  Date,  (ii) the date the Total  Facility is  terminated
either by the  Borrowers  pursuant  to  Article  IV or by the  Majority  Lenders
pursuant  to  Section  11.2,  and  (iii) the date this  Agreement  is  otherwise
terminated in accordance with its terms for any reason whatsoever.

                      "Total Facility" has the meaning specified in Section
2.1.

                      "UCC" means the Uniform Commercial Code (or any
successor  statute)  of the State of New York or of any other  state the laws of
which are required by Section 9-103 thereof to be applied in connection with the
issue of perfection of security interests.

                      "Unfunded Pension Liability" means the excess of an
ERISA Plan's benefit  liabilities  under Section  4001(a)(16) of ERISA, over the
current value of that ERISA Plan's  assets,  determined  in accordance  with the
assumptions  used for funding the  Pension  Plan  pursuant to Section 412 of the
Code for the applicable plan year.

                      "Unused Letter of Credit Subfacility" means an amount
equal to the  Letter of Credit  Subfacility  minus the sum of (a) the  aggregate
undrawn  amount of all  outstanding  Letters  of Credit  plus (b) the  aggregate
unpaid reimbursement obligations with respect to all Letters of Credit.

                      "Unused Line Fee" has the meaning specified in Section
3.5.

         1.2 Accounting  Terms. Any accounting term used in this Agreement shall
have, unless otherwise  specifically  provided herein,  the meaning  customarily
given in accordance with GAAP, and all financial computations hereunder shall be
computed, unless otherwise specifically provided herein, in accordance with GAAP
as  consistently  applied and using the same method for  inventory  valuation as
used in the preparation of the Financial Statements.

         1.3          Interpretive Provisions.  (a)  The meanings of defined
terms are equally applicable to the singular and plural forms of
the defined terms.

                      (b)     The words "hereof," "herein," "hereunder" and
similar  words  refer to this  Agreement  as a whole  and not to any  particular
provision  of this  Agreement;  and  Subsection,  Section,  Schedule and Exhibit
references are to this Agreement unless otherwise specified.

                      (c)(i)           The term "documents" includes any and all
instruments, documents, agreements, certificates,  indentures, notices and other
writings, however evidenced.

                           (ii)        The term "including" is not limiting and
means "including without limitation."



<PAGE>



                          (iii)    In the computation of periods of time from a
specified  date to a later  specified  date,  the word  "from"  means  "from and
including," the words "to" and "until" each mean "to but excluding" and the word
"through" means "to and including."

                      (d)  Unless otherwise expressly provided herein,
(i) references to agreements  (including this  Agreement) and other  contractual
instruments  shall be deemed to  include  all  subsequent  amendments  and other
modifications  thereto,  but  only  to the  extent  such  amendments  and  other
modifications  are not  prohibited by the terms of any Loan  Document,  and (ii)
references  to any statute or  regulation  are to be construed as including  all
statutory  and  regulatory  provisions   consolidating,   amending,   replacing,
supplementing or interpreting the statute or regulation.

                      (e)     The captions and headings of this Agreement are
for convenience of reference only and shall not affect the
interpretation of this Agreement.

                      (f)     This Agreement and other Loan Documents may use
several  different  limitations,  tests or  measurements to regulate the same or
similar matters. All such limitations, tests and measurements are cumulative and
shall each be performed in accordance with their terms.

                      (g)     This Agreement and the other Loan Documents are
the result of negotiations among and have been reviewed by counsel to the Agent,
the  Borrowers  and the other  parties,  and are the  products  of all  parties.
Accordingly, they shall not be construed against the Lenders or the Agent merely
because of the Agent's or Lenders' involvement in their preparation.


                                                     ARTICLE 2

                                            LOANS AND LETTERS OF CREDIT

         2.1 Total Facility.  Subject to all of the terms and conditions of this
Agreement, the Lenders severally agree to make available a total credit facility
of up to $116,450,000 (the "Total Facility") for the Borrowers' use from time to
time during the term of this  Agreement.  The Total  Facility shall be comprised
of: (a) a revolving line of credit  consisting of revolving loans and letters of
credit (the "Revolving  Credit  Facility") up to the Maximum Revolver Amount, as
described in Sections  2.2 and 2.4; and (b) the Term Loans  described in Section
2.3.

         2.2 Revolving  Loans.  (a) Amounts.  Subject to the satisfaction of the
conditions precedent set forth in Article 10, each Lender severally agrees, upon
Forstmann's request from time to time on any Business Day during the period from
the  Closing  Date  to the  Termination  Date,  to  make  revolving  loans  (the
"Revolving  Loans") to any  Borrower on whose  behalf a Revolving  Loan has been
requested by Forstmann and  participate  (as provided for in Section  2.4(f)) in
the reimbursement obligations under the Credit Support and Letters of Credit, in
amounts not to exceed at any time  (except  for BABC with  respect to BABC Loans
and the Agent with respect to


<PAGE>



Agent  Advances) the lesser of (i) such Lender's Pro Rata Share of the Aggregate
Availability  and (ii) such  Lender's  Revolving  Credit  Commitment  minus such
Lender's Pro Rata Share of the Aggregate Revolver  Outstandings at such time. If
the Aggregate Revolver Outstandings exceed the Aggregate  Availability (with the
Aggregate  Availability for this purpose calculated as if the Aggregate Revolver
Outstandings  were zero) or the Revolver  Outstandings  for such Borrower exceed
the  Availability  of such  Borrower  (with the  Availability  for this  purpose
calculated as if the Revolver  Outstandings  for such  Borrower were zero),  the
Lenders may refuse to make or otherwise  restrict the making of Revolving  Loans
as the Lenders  determine until such excess has been eliminated,  subject to the
Agent's  authority,  in its sole discretion,  to make Agent Advances pursuant to
the terms of Section 2.2(i).

                      (b)     Procedure for Borrowing.  (i) Each Borrowing shall
be made upon an irrevocable  written notice  delivered to the Agent by Forstmann
on  behalf  of the  applicable  Borrower  in the form of a notice  of  borrowing
("Notice of Borrowing"), in substantially the form of Exhibit E, together with a
Borrowing Base  Certificate  reflecting  sufficient  Aggregate  Availability and
Availability for the applicable  Borrower,  (which must be received by the Agent
prior to 11:00 a.m.  (New York City time) (x) three  Business  Days prior to the
requested  Funding  Date,  in the case of LIBOR Rate Loans and (y) no later than
12:00 noon (New York time) on the  requested  Funding  Date, in the case of Base
Rate Loans, specifying:

                              (A)  the applicable Borrower;

                              (B)  the amount of the Borrowing;

                              (C)  the requested Funding Date, which shall be a
         Business Day;

                              (D)  whether the Revolving Loans requested are to
         be Base Rate Revolving Loans or LIBOR Revolving Loans; and

                              (E)  the duration of the Interest Period if the
         requested  Revolving  Loans  are to be LIBOR  Revolving  Loans.  If the
         Notice of  Borrowing  fails to specify  the  duration  of the  Interest
         Period for any Borrowing  comprised of LIBOR Rate Loans,  such Interest
         Period shall be one month;

provided,  however, that with respect to any Borrowing to be made on the Closing
Date,  such Borrowing will consist of Base Rate Revolving Loans only. FAI hereby
authorizes  Forstmann to execute and deliver Notices of Borrowing and Notices of
Conversion/Continuation on its behalf and agrees to be bound by the same.

                           (ii)        With respect to any request for Base Rate
Revolving Loans, in lieu of delivering the  above-described  Notice of Borrowing
Forstmann may give the Agent  telephonic  notice of such request by the required
time, with such telephonic  notice to be confirmed in writing within 24 hours of
the  giving  of such  notice  but the  Agent  shall be  entitled  to rely on the
telephonic notice in making such Revolving Loans.


<PAGE>



                      (c)     Reliance upon Authority.  On or prior to the
Closing  Date and  thereafter  prior to any  change  with  respect to any of the
information  contained in the following  clauses (i) and (ii),  Forstmann  shall
deliver to the Agent a writing  setting  forth (i) the accounts of each Borrower
to which the Agent is authorized to transfer the proceeds of the Revolving Loans
requested  pursuant  to this  Section  2.2,  and (ii) the  names of the  persons
authorized  to request  Revolving  Loans on behalf of the  Borrowers,  and shall
provide the Agent with a specimen  signature  of each such  person.  The parties
hereto  acknowledge and agree that,  until Forstmann  delivers any change in the
information  described in clauses (i) and (ii) of the  preceding  sentence,  the
delivery of  information  delivered by  Forstmann  under  Section  2.2(c) of the
Original Loan Agreement will be deemed to satisfy the provisions of such clauses
with  respect  to  such  information.  The  Agent  shall  be  entitled  to  rely
conclusively on such person's  authority to request Revolving Loans on behalf of
such  Borrower,  the  proceeds  of  which  are to be  transferred  to any of the
accounts specified by Forstmann pursuant to the immediately  preceding sentence,
until the Agent receives written notice to the contrary. The Agent shall have no
duty to verify the identity of any individual representing him or herself as one
of the employees authorized by Forstmann to make such requests on its behalf.

                      (d)     No Liability.  The Agent shall not incur any
liability to any  Borrower as a result of acting upon any notice  referred to in
Sections  2.2(b) and (c),  which notice the Agent believes in good faith to have
been given by an officer duly authorized by Forstmann to request Revolving Loans
on behalf of any  Borrower  or for  otherwise  acting in good  faith  under this
Section 2.2, and the  crediting of  Revolving  Loans to any  Borrower's  deposit
account,  or  transmittal  to such  Person  as  Forstmann  shall  direct,  shall
conclusively  establish the  obligation of the Borrowers to repay such Revolving
Loans as provided herein.

                      (e)     Notice Irrevocable.  Any Notice of Borrowing (or
telephonic  notice in lieu  thereof)  made  pursuant to Section  2.2(b) shall be
irrevocable  and the  applicable  Borrower  shall be bound to  borrow  the funds
requested therein in accordance therewith.

                      (f)     Agent's Election.  Promptly after receipt of a
Notice of Borrowing (or telephonic  notice in lieu thereof)  pursuant to Section
2.2(b),  the Agent  shall  elect,  in its  discretion,  (i) to have the terms of
Section  2.2(g) apply to such  requested  Borrowing,  or (ii) to request BABC to
make a BABC Loan  pursuant  to the terms of Section  2.2(h) in the amount of the
requested  Borrowing;  provided,  however,  that if BABC  declines  in its  sole
discretion to make a BABC Loan pursuant to Section 2.2(h), the Agent shall elect
to have the terms of Section 2.2(g) apply to such requested Borrowing.

                      (g)     Making of Revolving Loans.  (i) In the event that
the  Agent  shall  elect to have the  terms of this  Section  2.2(g)  apply to a
requested  Borrowing as described in Section 2.2(f), then promptly after receipt
of a Notice of Borrowing or telephonic  notice pursuant to Section  2.2(b),  the
Agent shall notify the Lenders by telecopy, telephone or other similar form of


<PAGE>



transmission,  of the requested Borrowing.  Each Lender shall make the amount of
such Lender's Pro Rata Share of the requested  Borrowing  available to the Agent
in same day funds, to such account of the Agent as the Agent may designate,  not
later than 1:00 p.m.  (New York time) on the Funding  Date  applicable  thereto.
After  the  Agent's  receipt  of the  proceeds  of such  Revolving  Loans,  upon
satisfaction of the applicable conditions precedent set forth in Article 10, the
Agent  shall  make  the  proceeds  of  such  Revolving  Loans  available  to the
applicable  Borrower on the  applicable  Funding Date by  transferring  same day
funds equal to the proceeds of such Revolving Loans received by the Agent to the
account of such Borrower  designated  in writing by Forstmann and  acceptable to
the Agent; provided,  however, that the amount of Revolving Loans so made on any
date shall in no event exceed the Aggregate Availability or Availability of such
Borrower on such date.

                           (ii)        Unless the Agent receives notice from a
Lender on or prior to the Closing Date or, with respect to any  Borrowing  after
the Closing Date, at least one Business Day prior to the date of such Borrowing,
that such Lender will not make  available as and when required  hereunder to the
Agent for the account of any Borrower the amount of that Lender's Pro Rata Share
of the  Borrowing,  the Agent may assume  that each  Lender has made such amount
available to the Agent in  immediately  available  funds on the Funding Date and
the Agent may (but shall not be so required),  in reliance upon such assumption,
make available to such Borrower on such date a corresponding  amount.  If and to
the extent any Lender shall not have made its full amount available to the Agent
in  immediately  available  funds and the Agent in such  circumstances  has made
available to such  Borrower  such amount,  that Lender shall on the Business Day
following  such Funding Date make such amount  available to the Agent,  together
with  interest at the  Federal  Funds Rate for each day during  such  period.  A
notice of the Agent  submitted to any Lender with respect to amounts owing under
this subsection shall be conclusive, absent manifest error. If such amount is so
made available, such payment to the Agent shall constitute such Lender's Loan on
the date of Borrowing for all purposes of this Agreement.  If such amount is not
made  available to the Agent on the Business Day following the Funding Date, the
Agent will notify the  Borrowers of such failure to fund and, upon demand by the
Agent, the Borrowers shall pay such amount to the Agent for the Agent's account,
together  with  interest  thereon  for each day  elapsed  since the date of such
Borrowing, at a rate per annum equal to the Interest Rate applicable at the time
to the Loans  comprising such  Borrowing.  The failure of any Lender to make any
Loan on any Funding  Date (any such Lender,  prior to the cure of such  failure,
being  hereinafter  referred to as a "Defaulting  Lender") shall not relieve any
other Lender of any  obligation  hereunder to make a Loan on such Funding  Date,
but no Lender shall be  responsible  for the failure of any other Lender to make
the Loan to be made by such other Lender on any Funding Date.

                          (iii)     The Agent shall not be obligated to transfer
to a Defaulting  Lender any  payments  made by any Borrower to the Agent for the
Defaulting  Lender's  benefit,  nor shall a Defaulting Lender be entitled to the
sharing of any payments hereunder.  Amounts payable to a Defaulting Lender shall
instead be paid to or


<PAGE>



retained by the Agent. The Agent may hold and, in its discretion, re-lend to any
Borrower  the amount of all such  payments  received  or  retained by it for the
account of such Defaulting  Lender. Any amounts so re-lent to any Borrower shall
bear interest at the rate  applicable to Base Rate  Revolving  Loans and for all
other  purposes  of this  Agreement  shall be treated as if they were  Revolving
Loans,  provided,  however, that for purposes of voting or consenting to matters
with  respect  to the Loan  Documents  and  determining  Pro Rata  Shares,  such
Defaulting  Lender  shall be  deemed  not to be a  "Lender"  and  such  Lender's
Commitment shall be deemed to be zero (-0-). Until a Defaulting Lender cures its
failure to fund its Pro Rata Share of any Borrowing (1) such  Defaulting  Lender
shall not be  entitled  to any portion of the Unused Line Fee and (2) the Unused
Line Fee shall accrue in favor of the Lenders which have funded their respective
Pro Rata  Shares of such  requested  Borrowing,  shall be  allocated  among such
performing Lenders ratably based upon their relative  Commitments,  and shall be
calculated  based upon the average amount by which the aggregate  Commitments of
such performing  Lenders exceeds the sum of outstanding  Revolving Loans and the
undrawn face amount of all  outstanding  Letters of Credit.  This section  shall
remain  effective  with respect to such Lender until such time as the Defaulting
Lender  shall no longer  be in  default  of any of its  obligations  under  this
Agreement.  The terms of this  Section  shall not be  construed  to  increase or
otherwise  affect  the  Commitment  of any  Lender,  or  relieve  or excuse  the
performance by any Borrower of its duties and obligations hereunder.

                      (h)     Making of BABC Loans.  (i) In the event the Agent
shall elect,  with the consent of BABC, to have the terms of this Section 2.2(h)
apply to a requested Borrowing as described in Section 2.2(f), BABC shall make a
Revolving  Loan in the amount of such  Borrowing  (any such  Revolving Loan made
solely by BABC  pursuant to this  Section  2.2(h)  being  referred to as a "BABC
Loan" and such Revolving  Loans being referred to  collectively as "BABC Loans")
available to the applicable  Borrower on the Funding Date applicable  thereto by
transferring  same day funds to the  account  of such  Borrower,  designated  in
writing by Forstmann and acceptable to the Agent.  Each BABC Loan is a Revolving
Loan hereunder and shall be subject to all the terms and  conditions  applicable
to other  Revolving  Loans except that all payments  thereon shall be payable to
BABC  solely  for its own  account  (and for the  account  of the  holder of any
participation interest with respect to such Revolving Loan). The Agent shall not
request BABC to make any BABC Loan if (i) the Agent shall have received  written
notice from any Lender, or otherwise has actual  knowledge,  that one or more of
the  applicable  conditions  precedent  set  forth  in  Article  10 will  not be
satisfied on the requested  Funding Date for the applicable  Borrowing,  or (ii)
the  requested  Borrowing  would  exceed  the  Aggregate   Availability  or  the
Availability  of any Borrower on such Funding Date.  BABC shall not otherwise be
required to determine whether the applicable  conditions  precedent set forth in
Article 10 have been  satisfied  or the  requested  Borrowing  would  exceed the
Availability on the Funding Date applicable thereto prior to making, in its sole
discretion, any BABC Loan.



<PAGE>



                           (ii)      The BABC Loans shall be repayable on demand
and secured by the Collateral,  shall constitute Revolving Loans and Obligations
hereunder, and shall bear interest at the rate applicable to the Revolving Loans
from time to time.

                      (i)     Agent Advances.  (i) Subject to the limitations
set forth in the provisos  contained in this Section 2.2(i), the Agent is hereby
authorized by the  Borrowers  and the Lenders,  from time to time in the Agent's
sole  discretion,  (1) after the occurrence of a Default or an Event of Default,
or (2) at any time that any of the other  applicable  conditions  precedent  set
forth in  Article 10 have not been  satisfied,  to make  Revolving  Loans to any
Borrower on behalf of the Lenders which the Agent,  in its  reasonable  business
judgment,   deems  necessary  or  desirable  (A)  to  preserve  or  protect  the
Collateral,  or any  portion  thereof,  (B) to  enhance  the  likelihood  of, or
maximize the amount of, repayment of the Loans and other Obligations,  or (C) to
pay any other amount  chargeable to such Borrower  pursuant to the terms of this
Agreement,  including, without limitation, costs, fees and expenses as described
in Section  15.7 (any of the advances  described  in this  Section  2.2(i) being
hereinafter  referred  to as  "Agent  Advances");  provided,  that the  Majority
Lenders  may at any time  revoke the  Agent's  authorization  contained  in this
Section 2.2(i) to make Agent Advances,  any such revocation to be in writing and
to become effective prospectively upon the Agent's receipt thereof;

                           (ii)        The Agent Advances shall be repayable on
demand and  secured by the  Collateral,  shall  constitute  Revolving  Loans and
Obligations  hereunder,  and shall bear  interest at the rate  applicable to the
Revolving Loans from time to time. The Agent shall notify each Lender in writing
of each such Agent Advance.

                      (j)     Settlement.  It is agreed that each Lender's
funded  portion of the Revolving  Loan is intended by the Lenders to be equal at
all times to such Lender's Pro Rata Share of the  outstanding  Revolving  Loans.
Notwithstanding  such  agreement,  the Agent,  BABC, and the other Lenders agree
(which  agreement  shall  not  be  for  the  benefit  of or  enforceable  by the
Borrowers) that in order to facilitate the  administration of this Agreement and
the other Loan Documents,  settlement  among them as to the Revolving Loans, the
BABC  Loans and the Agent  Advances  shall  take  place on a  periodic  basis in
accordance with the following provisions:

                            (i)        The Agent shall request settlement
("Settlement")  with the Lenders on a weekly basis,  or on a more frequent basis
if so  determined  by the  Agent,  (1) on behalf of BABC,  with  respect to each
outstanding BABC Loan, (2) for itself,  with respect to each Agent Advance,  and
(3) with respect to collections received, in each case, by notifying the Lenders
by telecopy, telephone or other similar form of transmission,  of such requested
Settlement,  no  later  than  11:00  a.m.  (New  York  time) on the date of such
requested  Settlement (the "Settlement  Date"). Each Lender (other than BABC, in
the case of BABC Loans) shall make the amount of such Lender's Pro Rata Share of
the  outstanding  principal  amount of the BABC  Loans and Agent  Advances  with
respect to which Settlement is requested available to the Agent, for itself


<PAGE>



or for the account of BABC,  in same day funds,  to such account of the Agent as
the Agent may  designate,  not later  than  1:00 p.m.  (New York  time),  on the
Settlement  Date  applicable  thereto,  regardless  of  whether  the  applicable
conditions  precedent  set forth in  Article 10 have then been  satisfied.  Such
amounts made available to the Agent shall be applied  against the amounts of the
applicable  BABC Loan or Agent  Advance and,  together  with the portion of such
BABC Loan or Agent Advance  representing  BABC's Pro Rata Share  thereof,  shall
constitute  Revolving  Loans of such  Lenders.  If any such  amount  is not made
available to the Agent by any Lender on the Settlement Date applicable  thereto,
the Agent shall be  entitled  to recover  such amount on demand from such Lender
together with interest thereon at the Federal Funds Rate for the first three (3)
days from and after the Settlement Date and thereafter at the Interest Rate then
applicable to the Revolving Loans.

                      (ii)    Notwithstanding the foregoing, not more than one
(1) Business Day after demand is made by the Agent (whether  before or after the
occurrence  of a Default or an Event of Default  and  regardless  of whether the
Agent has requested a Settlement  with respect to a BABC Loan or Agent Advance),
each other Lender shall  irrevocably  and  unconditionally  purchase and receive
from  BABC or the  Agent,  as  applicable,  without  recourse  or  warranty,  an
undivided  interest and  participation in such BABC Loan or Agent Advance to the
extent of such Lender's Pro Rata Share  thereof by paying to the Agent,  in same
day funds,  an amount equal to such Lender's Pro Rata Share of such BABC Loan or
Agent Advance.  If such amount is not in fact made available to the Agent by any
Lender,  the Agent shall be entitled to recover  such amount on demand from such
Lender  together with  interest  thereon at the Federal Funds Rate for the first
three (3) days from and after such demand and  thereafter  at the Interest  Rate
then applicable to the Revolving Loans.

                          (iii)    From and after the date, if any, on which any
Lender  purchases an undivided  interest and  participation  in any BABC Loan or
Agent  Advance  pursuant  to  subsection  (ii) above,  the Agent shall  promptly
distribute to such Lender at such address as such Lender may request in writing,
such  Lender's Pro Rata Share of all payments of principal  and interest and all
proceeds  of  Collateral  received  by the Agent in respect of such BABC Loan or
Agent Advance.

                           (iv)     Between Settlement Dates, the Agent, to the
extent no Agent Advances or BABC Loans are outstanding, may pay over to BABC any
payments  received  by the  Agent,  which in  accordance  with the terms of this
Agreement  would  be  applied  to the  reduction  of the  Revolving  Loans,  for
application  to  BABC's  other  outstanding  Revolving  Loans.  If,  as  of  any
Settlement  Date,  collections  received  since the then  immediately  preceding
Settlement  Date have been applied to BABC's other  outstanding  Revolving Loans
other than to BABC Loans or Agent  Advances,  as  provided  for in the  previous
sentence,  BABC shall pay to the Agent for the  accounts of the  Lenders,  to be
applied to the outstanding  Revolving Loans of such Lenders, an amount such that
each Lender  shall,  upon receipt of such amount,  have,  as of such  Settlement
Date, its Pro Rata Share of the Revolving Loans. During the period


<PAGE>



between  Settlement  Dates,  BABC with  respect  to BABC  Loans,  the Agent with
respect to Agent  Advances,  and each Lender with respect to the Revolving Loans
other than BABC Loans and Agent  Advances,  shall be entitled to interest at the
applicable  rate or rates  payable  under this  Agreement on the actual  average
daily amount of funds employed by BABC, the Agent and the other Lenders.

                      (k)     Notation.  The Agent shall record on its books the
principal amount of the Revolving Loans owing to each Lender, including the BABC
Loans owing to BABC,  and the Agent  Advances  owing to the Agent,  from time to
time. In addition,  each Lender is authorized,  at such Lender's option, to note
the date and amount of each payment or  prepayment of principal of such Lender's
Revolving Loans in its books and records, including computer records, such books
and records constituting rebuttably presumptive evidence, absent manifest error,
of the accuracy of the information contained therein.

                      (l)     Lenders' Failure to Perform.  All Loans (other
than BABC Loans and Agent Advances) shall be made by the Lenders  simultaneously
and in  accordance  with their Pro Rata  Shares.  It is  understood  that (a) no
Lender shall be  responsible  for any failure by any other Lender to perform its
obligation to make any Loans  hereunder,  nor shall any Commitment of any Lender
be  increased  or  decreased  as a result of any failure by any other  Lender to
perform its obligation to make any Loans hereunder, (b) no failure by any Lender
to perform its  obligation  to make any Loans  hereunder  shall excuse any other
Lender from its obligation to make any Loans hereunder,  and (c) the obligations
of each Lender hereunder shall be several, not joint and several.

         2.3          Term Loans.

                      (a)     Amounts of Term Loans.  Each Original Lender
severally  agreed to make a term loan (any such term loan being referred to as a
"Term Loan" and such term loans  being  referred  to  collectively  as the "Term
Loans") to  Forstmann on the  "Closing  Date" (as defined in the  Original  Loan
Agreement),  upon the  satisfaction  of the  conditions  precedent  set forth in
Article 10 of the Original Loan  Agreement,  in an amount equal to such Lender's
Term Loan Commitment. The Term Loans were initially Base Rate Term Loans.

                      (b)     Making of Term Loans.  Each Original Lender made
the amount of such Lender's Term Loan  available to the Agent in same day funds,
to such account of the Agent as the Agent  designated  on the  Original  Closing
Date.  After the  Agent's  receipt  of the  proceeds  of such Term  Loans,  upon
satisfaction of the conditions precedent set forth in Article 10 of the Original
Loan  Agreement,  the Agent made the  proceeds of such Term Loans  available  to
Forstmann on the Original  Closing Date by transferring  same day funds equal to
the proceeds of such Term Loans received by the Agent to an account of Forstmann
designated  in writing by  Forstmann  or as Forstmann  otherwise  instructed  in
writing.

                      (c)     Term Loan Notes.  Forstmann executed and delivered
to the Agent on behalf of each Original Lender, on the Original


<PAGE>



Closing Date, a promissory note, substantially in the form of Exhibit A attached
to the Original Loan Agreement  (such  promissory  notes,  together with any new
notes in the form of  Exhibit A  attached  hereto  issued  pursuant  to  Section
13.3(d)  upon the  assignment  of any portion of any Lender's  Term Loan,  being
hereinafter  referred to  collectively as the "Term Loan Notes" and each of such
promissory  notes being  hereinafter  referred to  individually  as a "Term Loan
Note"),  to evidence such Lender's  Term Loan, in an original  principal  amount
equal to the  amount  of such  Lender's  Term  Loan  Commitment  and with  other
appropriate insertions.  The Term Loan Notes delivered to the Agent on behalf of
each  Lender  were  dated  the  Original  Closing  Date and  stated to mature in
thirty-six  (36)  monthly  installments.  Each  of the  first  thirty-five  (35)
installments of principal were, or shall be (as applicable),  in an amount equal
to such Lender's Pro Rata Share of $374,405 and shall be payable on the last day
of each month,  commencing  on the last day of the month  following the month in
which the Original  Closing Date occurred and ending on the last day of the 35th
month following the month in which the Original  Closing Date occurred,  and the
final installment of principal shall be in an amount equal to the then remaining
principal  balance  of such  Lender's  Term  Loans,  and shall be payable on the
Termination  Date. Each such  installment  shall be payable to the Agent for the
account of the applicable Lender.

                      (d)     Notation and Endorsement.  The Agent shall record
on its books the  principal  amount of the Term Loans  owing to each Lender from
time to time. In addition,  each Lender is authorized,  at such Lender's option,
to note the date and amount of each payment or  prepayment  of principal of such
Lender's  Term  Loans  in  its  books  and  records,   such  books  and  records
constituting  rebuttably  presumptive  evidence,  absent  manifest error, of the
accuracy of the information  contained therein.  Prior to the transfer of a Term
Loan Note, the  applicable  Lender shall endorse on the reverse side thereof the
outstanding  principal  balance of the Term Loan evidenced  thereby.  Failure by
such  Lender  to  make  such  notation  or  endorsement  shall  not  affect  the
obligations of the Borrowers  under such Term Loan Note or any of the other Loan
Documents.

         2.4          Letters of Credit.

                      (a)     Agreement to Cause Issuance.  Subject to the terms
and conditions of this Agreement,  and in reliance upon the  representations and
warranties of each of the Borrowers  herein set forth,  the Agent agrees to take
reasonable  steps to cause to be issued Letters of Credit for the account of the
relevant  Borrower,  and to provide credit support or other enhancement to banks
acceptable  to Agent,  which  issue  Letters of Credit for the  accounts  of the
Borrowers (any such credit support or enhancement  being herein referred to as a
"Credit Support"), as applicable,  in accordance with this Section 2.4 from time
to time during the term of this Agreement.

                      (b)     Amounts; Outside Expiration Date.  The Agent shall
not have any obligation to take steps to cause to be issued any
Letter of Credit or to provide Credit Support for any Letter of


<PAGE>



Credit at any time if: (1) the maximum undrawn amount of the requested Letter of
Credit is greater than the Unused Letter of Credit Subfacility at such time; (2)
the  maximum  undrawn  amount  of  the  requested   Letter  of  Credit  and  all
commissions,  fees,  and charges due from any  Borrower in  connection  with the
opening thereof exceed the Aggregate  Availability  or the  Availability of such
Borrower at such time;  (3) such Letter of Credit has an  expiration  date later
than the  earlier to occur of (i) the Stated  Termination  Date and (ii) (x) the
date which is one year from the date of issuance thereof, in the case of Standby
Letters  of  Credit  (y) the date  which is 180 days  from the date of  issuance
thereof, in the case of Documentary Letters of Credit.

                      (c)     Other Conditions.  In addition to being subject to
the satisfaction of the applicable conditions precedent contained in Article 10,
the obligation of the Agent to take  reasonable  steps to cause to be issued any
Letter  of Credit  or to  provide  Credit  Support  for any  Letter of Credit is
subject to the following  conditions precedent having been satisfied in a manner
satisfactory to the Agent:

                            (i)        Forstmann shall have delivered to the
proposed  issuer of such  Letter of Credit,  at such times and in such manner as
such proposed  issuer may prescribe,  an application on behalf of the applicable
Borrower in form and  substance  satisfactory  to such  proposed  issuer and the
Agent for the  issuance of the Letter of Credit and such other  documents as may
be  required  pursuant  to the  terms  thereof,  and the form  and  terms of the
proposed  Letter of Credit shall be  satisfactory to the Agent and such proposed
issuer; and

                           (ii)     As of the date of issuance, no order of any
court, arbitrator or Governmental Authority shall purport by its terms to enjoin
or restrain money center banks  generally from issuing  letters of credit of the
type and in the amount of the  proposed  Letter of Credit,  and no law,  rule or
regulation  applicable  to  money  center  banks  generally  and no  request  or
directive  (whether  or not  having  the  force of law)  from  any  Governmental
Authority with jurisdiction over money center banks generally shall prohibit, or
request  that the proposed  issuer of such Letter of Credit  refrain  from,  the
issuance  of letters of credit  generally  or the  issuance  of such  Letters of
Credit.

                      (d)     Issuance of Letters of Credit.

                            (i)      Request for Issuance.  Forstmann shall give
the Agent two (2)  Business  Days' prior  written  notice of any request for the
issuance  of a Letter of Credit.  Such  notice  shall be  irrevocable  and shall
specify  the  applicable  Borrower,  the  original  face amount of the Letter of
Credit  requested,  the  effective  date (which date shall be a Business Day) of
issuance of such requested  Letter of Credit,  whether such Letter of Credit may
be drawn in a single  or in  partial  draws,  the date on which  such  requested
Letter of Credit is to expire (which date shall be a Business  Day), the purpose
for which such  Letter of Credit is to be  issued,  and the  beneficiary  of the
requested  Letter of Credit.  Forstmann shall attach to such notice the proposed
form of the


<PAGE>



Letter of Credit.  FAI hereby authorizes Forstmann to execute and
deliver such notices on its behalf and agrees to be bound by the
same.

                           (ii)    Responsibilities of the Agent; Issuance.  The
Agent  shall  determine,  as of  the  Business  Day  immediately  preceding  the
requested  effective  date of  issuance of the Letter of Credit set forth in the
notice  from  Forstmann  pursuant  to Section  2.4(d)(i),  (i) the amount of the
applicable   Unused  Letter  of  Credit   Subfacility  and  (ii)  the  Aggregate
Availability and the Availability of the applicable Borrower as of such date. If
(i) the undrawn amount of the requested Letter of Credit is not greater than the
applicable  Unused  Letter of Credit  Subfacility  and (ii) the issuance of such
requested Letter of Credit and all commissions,  fees, and charges due from such
Borrower in connection  with the opening  thereof would not exceed the Aggregate
Availability  or the  Availability  of  such  Borrower,  the  Agent  shall  take
reasonable steps to cause such issuer to issue the requested Letter of Credit on
such requested effective date of issuance.

                          (iii)     Notice of Issuance.  On each Settlement Date
the Agent  shall give  notice to each  Lender of the  issuance of all Letters of
Credit issued since the last Settlement Date.

                           (iv)     No Extensions or Amendment.  The Agent shall
not be obligated to cause any Letter of Credit to be extended or amended  unless
the requirements of this Section 2.4(d) are met as though a new Letter of Credit
were being  requested  and issued.  With  respect to any Letter of Credit  which
contains any "evergreen" or automatic  renewal  provision,  each Lender shall be
deemed to have consented to any such extension or renewal unless any such Lender
shall have  provided to the Agent,  not less than 30 days prior to the last date
on  which  the  applicable  issuer  can in  accordance  with  the  terms  of the
applicable  Letter of Credit  decline to extend or renew such  Letter of Credit,
written  notice that it declines  to consent to any such  extension  or renewal,
provided,  that if all of the  requirements  of this  Section 2.4 are met and no
Default or Event of Default  exists,  no Lender shall  decline to consent to any
such extension or renewal.

                      (e)     Payments Pursuant to Letters of Credit.

                            (i)        Payment of Letter of Credit Obligations.
Each  Borrower  agrees to reimburse  the issuer for any draw under any Letter of
Credit and the Agent for the account of the Lenders upon any payment pursuant to
any Credit Support  immediately upon demand, and to pay the issuer of the Letter
of Credit the amount of all other  obligations and other amounts payable to such
issuer under or in connection  with any Letter of Credit  immediately  when due,
irrespective of any claim, setoff, defense or other right which any Borrower may
have at any time against such issuer or any other Person.

                           (ii)        Revolving Loans to Satisfy Reimbursement
Obligations.  In the event that the issuer of any Letter of Credit
honors a draw under such Letter of Credit or the Agent shall have
made any payment pursuant to any Credit Support and the Borrowers


<PAGE>



shall not have  repaid such amount to the issuer of such Letter of Credit or the
Agent,  as  applicable,  pursuant to Section  2.4(e)(i),  the Agent shall,  upon
receiving notice of such failure,  notify each Lender of such failure,  and each
Lender shall unconditionally pay to the Agent, for the account of such issuer or
the Agent, as applicable,  as and when provided hereinbelow,  an amount equal to
such  Lender's  Pro Rata Share of the amount of such  payment in Dollars  and in
same day funds.  If the Agent so notifies  the Lenders  prior to 2:00 p.m.  (New
York time) on any Business  Day,  each Lender shall make  available to the Agent
the amount of such payment,  as provided in the immediately  preceding sentence,
on such  Business  Day.  Such  amounts  paid by the  Lenders to the Agent  shall
constitute  Revolving  Loans which shall be deemed to have been requested by the
applicable Borrower pursuant to Section 2.2 as set forth in Section 4.7.

                      (f)     Participation.

                            (i)     Purchase of Participation.  Immediately upon
issuance of any Letter of Credit in accordance with Section 2.4(d),  each Lender
shall be deemed to have irrevocably and  unconditionally  purchased and received
without  recourse or warranty,  an undivided  interest and  participation in the
Letter of Credit or the Credit Support provided through the Agent to such issuer
in connection with the issuance of such Letter of Credit, equal to such Lender's
Pro Rata Share of the face amount of such Letter of Credit or the amount of such
Credit Support (including,  without limitation,  all obligations of any Borrower
with respect thereto, and any security therefor or guaranty pertaining thereto).

                           (ii)    Sharing of Reimbursement Obligation Payments.
Whenever  the  Agent  receives  a  payment  from  any  Borrower  on  account  of
reimbursement  obligations in respect of a Letter of Credit or Credit Support as
to which the Agent has previously received for the account of the issuer thereof
payment from a Lender  pursuant to Section  2.4(e)(ii)  the Agent shall promptly
pay to such  Lender  such  Lender's  Pro Rata  Share of such  payment  from such
Borrower  in  Dollars.  Each  such  payment  shall  be made by the  Agent on the
Business Day on which the Agent  receives  immediately  available  funds paid to
such Person pursuant to the immediately preceding sentence, if received prior to
1:00  p.m.  (New  York  time) on such  Business  Day and  otherwise  on the next
succeeding Business Day.

                          (iii)    Obligations Irrevocable.  The obligations of
each Lender to make  payments to the Agent with  respect to any Letter of Credit
or with respect to any Credit Support provided through the Agent with respect to
a Letter of Credit, and the obligations of each Borrower to make payments to the
Agent, for the account of the Lenders, shall be irrevocable,  not subject to any
qualification or exception  whatsoever , including,  without limitation,  any of
the following circumstances:

                              (A)   any lack of validity or enforceability of
         this Agreement or any of the other Loan Documents;

                              (B)   the existence of any claim, setoff, defense
         or other right which any Borrower may have at any time against


<PAGE>



         a  beneficiary  named in a Letter of Credit  or any  transferee  of any
         Letter of Credit  (or any Person  for whom any such  transferee  may be
         acting), any Lender, the Agent, the issuer of such Letter of Credit, or
         any other Person, whether in connection with this Agreement, any Letter
         of  Credit,  the  transactions  contemplated  herein  or any  unrelated
         transactions   (including  any  underlying   transactions  between  any
         Borrower or any other Person and the beneficiary named in any Letter of
         Credit);

                              (C)   any draft, certificate or any other document
         presented under the Letter of Credit proving to be forged,  fraudulent,
         invalid or insufficient  in any respect or any statement  therein being
         untrue or inaccurate in any respect;

                              (D)    the surrender or impairment of any security
         for the performance or observance of any of the terms of any
         of the Loan Documents; or

                              (E)      the occurrence of any Default or Event of
         Default.

                      (g)     Recovery or Avoidance of Payments.  In the event
any payment by or on behalf of any  Borrower  received by the Agent with respect
to any Letter of Credit or Credit Support  provided for any Letter of Credit (or
any  guaranty  by any  Borrower  or  reimbursement  obligation  of any  Borrower
relating  thereto)  and  distributed  by the Agent to the  Lenders on account of
their  respective  participation  therein is  thereafter  set aside,  avoided or
recovered  from the Agent in connection  with any  receivership,  liquidation or
bankruptcy  proceeding,  the Lenders shall, upon demand by the Agent, pay to the
Agent their  respective  Pro Rata  Shares of such  amount set aside,  avoided or
recovered,  together  with interest at the rate required to be paid by the Agent
upon the amount required to be repaid by it.

                      (h)  Compensation for Letters of Credit.

                        (i)         Letter of Credit Fee.  The Borrowers jointly
and  severally  agree to pay to the Agent with respect to each Letter of Credit,
for the account of the Lenders,  the Letter of Credit Fee  specified  in, and in
accordance with the terms of, Section 3.6.

                        (ii)           Issuer Fees and Charges.  The Borrowers
jointly and severally agree to pay to the issuer of any Letter of Credit,  or to
the Agent,  for the account of the issuer of any such  Letter of Credit,  solely
for such  issuer's  account,  such fees and other charges as are charged by such
issuer for letters of credit issued by it, including,  without  limitation,  its
standard  fees  for  issuing,  administering,  amending,  renewing,  paying  and
canceling  letters  of credit  and all other  fees  associated  with  issuing or
servicing  letters  of  credit,  as and  when  assessed,  and all  out-of-pocket
expenses related to any such Letter of Credit.

                      (i)     Assumption of Risk; Exoneration; Power of
Attorney.



<PAGE>



                            (i)        Assumption of Risk by the Borrowers.  As
among the Borrowers,  the Lenders, and the Agent, the Borrowers assume all risks
of the acts and  omissions of, or misuse of any of the Letters of Credit by, the
respective  beneficiaries  of such Letters of Credit.  In furtherance and not in
limitation of the foregoing,  the Lenders and the Agent shall not be responsible
for: (A) the form, validity, sufficiency,  accuracy, genuineness or legal effect
of any document  submitted by any Person in connection  with the application for
and issuance of and presentation of drafts with respect to any of the Letters of
Credit,  even  if it  should  prove  to be  in  any  or  all  respects  invalid,
insufficient,  inaccurate, fraudulent or forged; (B) the validity or sufficiency
of any instrument  transferring or assigning or purporting to transfer or assign
any Letter of Credit or the rights or benefits  thereunder or proceeds  thereof,
in whole or in part,  which  may  prove to be  invalid  or  ineffective  for any
reason;  (C) the  failure of the  beneficiary  of any Letter of Credit to comply
duly with conditions  required in order to draw upon such Letter of Credit;  (D)
errors, omissions,  interruptions,  or delays in transmission or delivery of any
messages, by mail, cable, telegraph, telex or otherwise,  whether or not they be
in cipher;  (E) errors in  interpretation  of technical  terms;  (F) any loss or
delay in the transmission or otherwise of any document  required in order make a
drawing  under  any  Letter  of  Credit  or of the  proceeds  thereof;  (G)  the
misapplication by the beneficiary of any Letter of Credit of the proceeds of any
drawing under such Letter of Credit; or (H) any consequences arising from causes
beyond the control of the Lenders or the Agent,  including,  without limitation,
any act or omission,  whether rightful or wrongful,  of any present or future de
jure or de facto  Governmental  Authority.  None of the foregoing  shall affect,
impair or prevent the vesting of any rights or powers of the Agent or any Lender
under this Section 2.4(i).

                           (ii)      Exoneration.  In furtherance and extension,
and not in limitation,  of the specific  provisions set forth above,  any action
taken or omitted by the Agent or any Lender under or in  connection  with any of
the Letters of Credit or any related  certificates,  if taken or omitted in good
faith and in the absence of gross  negligence or willful  misconduct,  shall not
put the Agent or any Lender  under any  resulting  liability  to any Borrower or
relieve any Borrower of any of its obligations hereunder to any such Person.

                          (iii)      Power of Attorney.  In connection with all
Inventory  financed by Letters of Credit,  each  Borrower  hereby  appoints  the
Agent, or the Agent's designee, as its attorney,  with full power and authority:
(a) to sign  and/or  endorse the  Borrower's  name upon any  warehouse  or other
receipts;  (b) to sign  the  Borrower's  name  on  bills  of  lading  and  other
negotiable and non-negotiable  documents; (c) to clear Inventory through customs
in the  Agent's  or the  Borrower's  name,  and to sign and  deliver  to customs
officials  powers of attorney in the  Borrower's  name for such purpose;  (d) to
complete in the Borrower's or the Agent's name, any order, sale, or transaction,
obtain the necessary documents in connection therewith, and collect the proceeds
thereof;  and (e) to do such other acts and things as are  necessary in order to
enable the Agent to obtain possession of the Inventory


<PAGE>



and to obtain payment of the Obligations. Neither the Agent nor its designee, as
the Borrower's attorney,  will be liable for any acts or omissions,  nor for any
error of judgement or mistakes of fact or law. This power, being coupled with an
interest, is irrevocable until all Obligations have been paid and satisfied.

                           (iv)        Account Party.  Each Borrower hereby
authorizes  and directs any issuer of a Letter of Credit to name the Borrower as
the  "Account  Party"  therein  and to  deliver  to the Agent  all  instruments,
documents and other writings and property received by the issuer pursuant to the
Letter of  Credit,  and to accept  and rely upon the  Agent's  instructions  and
agreements  with respect to all matters arising in connection with the Letter of
Credit or the application therefor.

                            (v)    Control of Inventory.  In connection with all
Inventory  financed by Letters of Credit,  each  Borrower  will,  at the Agent's
request,  instruct all  suppliers,  carriers,  forwarders,  warehouses or others
receiving or holding cash, checks, Inventory,  documents or instruments in which
the Agent holds a security  interest to deliver them to the Agent and/or subject
to the Agent's order, and if they shall come into the Borrower's possession,  to
deliver them,  upon request,  to the Agent in their  original form. The Borrower
shall also, at the Agent's request,  designate the Agent as the consignee on all
bills of lading and other negotiable and non-negotiable documents.

                      (j)     Supporting Letter of Credit.  If, notwithstanding
the  provisions  of  Section  2.4(b)  and  Section  12.1 any Letter of Credit is
outstanding  upon the termination of this Agreement,  then upon such termination
the Borrowers shall deposit with the Agent, for the ratable benefit of the Agent
and the  Lenders,  with  respect to each  Letter of Credit then  outstanding,  a
standby letter of credit (a "Supporting Letter of Credit") in form and substance
satisfactory to the Agent,  issued by an issuer  satisfactory to the Agent in an
amount equal to the greatest amount for which such Letter of Credit may be drawn
plus any fees and expenses  associated  with such Letter of Credit,  under which
Supporting  Letter of Credit the Agent is entitled to draw amounts  necessary to
reimburse  the  Agent and the  Lenders  for  payments  made by the Agent and the
Lenders under such Letter of Credit or under any credit  support or  enhancement
provided  through  the Agent  with  respect  thereto  and any fees and  expenses
associated with such Letter of Credit. Such Supporting Letter of Credit shall be
held by the Agent,  for the  ratable  benefit of the Agent and the  Lenders,  as
security for, and to provide for the payment of, the aggregate undrawn amount of
such Letters of Credit remaining outstanding.

         2.5 Automated  Clearing House Transfers and  Overdrafts.  Each Borrower
may request and the Agent may, in its sole and absolute discretion,  arrange for
such  Borrower to obtain from Bank of America ACH  Transactions.  Each  Borrower
acknowledges  and agrees that the  obtaining  of ACH  Transactions  from Bank of
America (a) is in the sole and absolute  discretion  of Bank of America,  (b) is
subject  to all rules  and  regulations  of the Bank,  and (c) is due to Bank of
America relying on the indemnity of the Agent and the


<PAGE>



Lenders to Bank of America with respect to all risks of loss associated with the
ACH Transactions.


                                                     ARTICLE 3

                                                 INTEREST AND FEES

         3.1          Interest.

                      (a)     Interest Rates.  All outstanding Obligations shall
bear interest on the unpaid principal amount thereof  (including,  to the extent
permitted  by law,  on  interest  thereon  not paid when due) from the date made
until paid in full in cash at a rate determined by reference to the Base Rate or
the LIBOR Rate and Sections 3.1(a)(i),  3.1(a)(ii),  3.1(a)(iii), and 3.1(a)(iv)
as  applicable,  but not to exceed the Maximum  Rate  described  in Section 3.3.
Subject to the  provisions  of Section  3.2,  any of the Loans may be  converted
into,  or  continued  as,  Base Rate  Loans or LIBOR  Rate  Loans in the  manner
provided in Section  3.2. If at any time Loans are  outstanding  with respect to
which notice has not been delivered to the Agent in accordance with the terms of
this Agreement specifying the basis for determining the interest rate applicable
thereto,  then those Loans shall be Base Rate Loans and shall bear interest at a
rate  determined  by reference to the Base Rate until notice to the contrary has
been given to the Agent in  accordance  with this  Agreement and such notice has
become  effective.   Except  as  otherwise   provided  herein,  the  outstanding
Obligations shall bear interest as follows:

                            (i)    For all Base Rate Term Loans at a fluctuating
per annum rate equal to the Base Rate plus the Applicable Margin;

                           (ii)    For all Base Rate Revolving Loans and other
Obligations  (other  than  Base  Rate Term  Loans  and  LIBOR  Rate  Loans) at a
fluctuating per annum rate equal to the Base Rate plus the Applicable Margin;

                          (iii)    For all LIBOR Term Loans at a per annum rate
equal to the LIBOR Rate plus the Applicable Margin; and

                           (iv)    For all LIBOR Revolving Loans at a per annum
rate equal to the LIBOR Rate plus the Applicable Margin.

Each change in the Base Rate shall be reflected in the interest  rate  described
in  clauses  (i) and (ii) above as of the  effective  date of such  change.  All
interest charges shall be computed on the basis of a year of 360 days and actual
days  elapsed.  Interest  accrued on all Loans will be payable in arrears on the
first day of each month hereafter.

                      (b)     Default Rate.  If any Default or Event of Default
occurs and is  continuing,  then,  while any such Default or Event of Default is
outstanding,  all of the  Obligations  shall bear  interest at the Default  Rate
applicable thereto.



<PAGE>



         3.2          Conversion and Continuation Elections.  (a)  Forstmann
may, on behalf of any or all Borrowers, upon irrevocable written
notice to the Agent in accordance with Subsection 3.2(b):

                            (i)    elect, as of any Business Day, in the case of
Base Rate Loans to convert any such Loans (or any part  thereof in an amount not
less than  $5,000,000 in an integral  multiple of $1,000,000 in excess  thereof)
into LIBOR Rate Loans; or

                           (ii)    elect, as of the last day of the applicable
Interest  Period,  to  continue  any LIBOR Rate Loans  having  Interest  Periods
expiring on such day (or any part thereof in an amount not less than $5,000,000,
or that is in an integral multiple of $1,000,000 in excess thereof);

provided,  that if at any time the  aggregate  amount  of  LIBOR  Rate  Loans in
respect of any Borrowing is reduced,  by payment,  prepayment,  or conversion of
part  thereof  to  be  less  than  $5,000,000,   such  LIBOR  Rate  Loans  shall
automatically convert into Base Rate Loans, and on and after such date the right
of Forstmann to continue such Loans as, and convert such Loans into,  LIBOR Rate
Loans, as the case may be, shall terminate.

                      (b)     Forstmann shall deliver a notice of conversion/
continuation ("Notice of Conversion/Continuation"), in substantially the form of
Exhibit F on behalf of all Borrowers, to be received by the Agent not later than
11:00  a.m.  (New York  time) at least  three  Business  Days in  advance of the
Conversion/  Continuation  Date,  if the  Loans  are  to be  converted  into  or
continued as LIBOR Rate Loans and specifying:

                            (i)    the proposed Conversion/Continuation Date;

                           (ii)    the aggregate amount of Loans to be converted
or renewed;

                          (iii)    the type of Loans resulting from the proposed
conversion or continuation; and

                           (iv)        the duration of the requested Interest
Period,  provided,  however,  Forstmann  may not select an Interest  Period with
respect to any portion of the Term Loans  which  extends  beyond an  installment
payment date for the Term Loans unless,  after giving  effect to such  election,
the portion of the Term Loans not subject to Interest  Periods ending after such
installment  payment date is equal to or greater than the  principal due on such
installment payment date.

                      (c)     If upon the expiration of any Interest Period
applicable  to LIBOR Rate  Loans,  Forstmann  has failed to select  timely a new
Interest  Period to be applicable to LIBOR Rate Loans or if any Default or Event
of Default  then  exists,  Forstmann  shall be deemed to have elected to convert
such LIBOR Rate Loans into Base Rate Loans  effective as of the expiration  date
of such Interest Period.



<PAGE>



                      (d)     The Agent will promptly notify each Lender of its
receipt   of  a  Notice  of   Conversion/Continuation.   All   conversions   and
continuations  shall be made  ratably  according to the  respective  outstanding
principal  amounts of the Loans with  respect to which the notice was given held
by each Lender.

                      (e)     During the existence of a Default or Event of
Default, Forstmann may not elect to have a Loan converted into or continued as a
LIBOR Rate Loan.

                      (f)     After giving effect to any conversion or
continuation of Loans,  there may not be more than 5 different  Interest Periods
in effect.

         3.3 Maximum Interest Rate. In no event shall any interest rate provided
for  hereunder  exceed the maximum rate legally  chargeable  by any Lender under
applicable  law for  loans of the type  provided  for  hereunder  (the  "Maximum
Rate"). If, in any month, any interest rate, absent such limitation,  would have
exceeded the Maximum  Rate,  then the interest  rate for that month shall be the
Maximum Rate,  and, if in future months,  that interest rate would  otherwise be
less than the Maximum Rate,  then that interest rate shall remain at the Maximum
Rate until such time as the amount of interest paid hereunder  equals the amount
of interest  which would have been paid if the same had not been  limited by the
Maximum Rate. In the event that,  upon payment in full of the  Obligations,  the
total amount of interest  paid or accrued  under the terms of this  Agreement is
less than the total amount of interest  which  would,  but for this Section 3.3,
have been paid or  accrued if the  interest  rates  otherwise  set forth in this
Agreement  had at all times  been in  effect,  then the  Borrowers  jointly  and
severally  agree,  to the extent  permitted by applicable law, to pay the Agent,
for the account of the Lenders,  an amount equal to the excess of (a) the lesser
of (i) the amount of interest  which would have been charged if the Maximum Rate
had, at all times,  been in effect over (ii) the amount of interest  which would
have accrued had the interest rates  otherwise set forth in this  Agreement,  at
all times,  been in effect  over (b) the  amount of  interest  actually  paid or
accrued  under this  Agreement.  In the event that a court  determines  that the
Agent and/or any Lender has received  interest  and other  charges  hereunder in
excess of the Maximum Rate,  such excess shall be deemed received on account of,
and shall  automatically  be  applied  to  reduce,  the  Obligations  other than
interest,  in the inverse  order of  maturity,  and if there are no  Obligations
outstanding,  the Agent and/or such Lender shall  refund to the  Borrowers  such
excess.

         3.4 Facility Fee;  Closing Fee.  Each of  Forstmann,  the Agent and the
Lenders  acknowledges  and agrees  that  Forstmann  paid to the  Agent,  for the
account of each Original Lender,  a  non-refundable  facility fee (the "Facility
Fee") equal to one-half of one percent (.50%) of such Lender's Commitment.  Such
Facility  Fee was payable on the date of the  Original  Loan  Agreement  and was
earned when due. In addition,  the Borrowers  jointly and severally agree to pay
the Agent a fee of $100,000 on the Closing  Date (the  "Closing  Fee"),  for the
ratable account of each Lender.



<PAGE>



         3.5 Unused Line Fee. Until the  Obligations  have been paid in full and
the Agreement  terminated,  the Borrowers jointly and severally agree to pay, on
the first day of each month and on the Termination  Date, to the Agent,  for the
ratable  account of the  Lenders,  an unused  line fee equal to  one-half of one
percent  (.50%)  per annum on the  average  daily  amount  by which the  Maximum
Revolver  Amount  exceeded the sum of the average  daily  outstanding  amount of
Revolving  Loans and the  undrawn  face  amount of all  outstanding  Letters  of
Credit,  during the immediately  preceding month or shorter period if calculated
on the Termination Date. The unused line fee shall be computed on the basis of a
360-day year for the actual number of days elapsed. All payments received by the
Agent on account of Accounts or as proceeds of other  Collateral shall be deemed
to be credited to the  Borrowers'  Loan  Accounts  immediately  upon receipt for
purposes of calculating the unused line fee pursuant to this Section 3.5.

         3.6 Letter of Credit Fee. The Borrowers  jointly and severally agree to
pay to the Agent,  for the ratable  account of the  Lenders,  for each Letter of
Credit, a fee (the "Letter of Credit Fee") equal to two and one-quarter  percent
(2.25%) per annum of the undrawn face amount of each Letter of Credit issued for
the Borrowers' accounts at Forstmann's  request,  plus all out-of-pocket  costs,
fees and expenses  incurred by the Agent in connection with the application for,
issuance  of, or  amendment  to any  Letter of  Credit,  which  costs,  fees and
expenses could include a "fronting fee" required to be paid by the Agent to such
issuer for the assumption of the settlement risk in connection with the issuance
of such Letter of Credit.  The Letter of Credit Fee shall be payable  monthly in
arrears on the first day of each month  following any month in which a Letter of
Credit was issued and/or in which a Letter of Credit  remains  outstanding.  The
Letter of Credit Fee shall be  computed  on the basis of a 360-day  year for the
actual number of days elapsed.


                                                     ARTICLE 4

                                             PAYMENTS AND PREPAYMENTS

         4.1 Revolving Loans. The Borrowers jointly and severally agree to repay
the outstanding  principal  balance of the Revolving Loans, plus all accrued but
unpaid  interest  thereon,  on the  Termination  Date.  The Borrowers may prepay
Revolving  Loans  at any  time,  and  reborrow  subject  to the  terms  of  this
Agreement;  provided,  however,  that with respect to any LIBOR  Revolving Loans
prepaid by the Borrowers  prior to the  expiration  date of the Interest  Period
applicable  thereto,  the Borrowers  jointly and severally promise to pay to the
Agent for  account of the  Lenders  the  amounts  described  in Section  5.4. In
addition, and without limiting the generality of the foregoing,  upon demand the
Borrowers  jointly and severally promise to pay to the Agent, for account of the
Lenders,  the  amount,  without  duplication,  by which the  Aggregate  Revolver
Outstandings exceed the Aggregate  Availability (with Aggregate Availability for
this purpose calculated as if the Aggregate Revolver  Outstandings were zero) or
the  Availability  of any Borrower (with  Availability of such Borrower for this
purpose


<PAGE>



calculated as if the Revolver Outstandings of such Borrower were
zero).

         4.2  Termination  of  Revolving  Credit  Facility.  The  Borrowers  may
terminate the Revolving Credit Facility upon at least thirty (30) Business Days'
notice to the Agent and the Lenders,  by  Forstmann  on behalf of the  Borrowers
upon (a) the payment in full of all outstanding  Revolving Loans,  together with
accrued interest  thereon,  and the  cancellation of all outstanding  Letters of
Credit,  (b) the  payment  of the  early  termination  fee set forth in the next
sentence,  (c) the payment in full in cash of all other Obligations  (other than
any outstanding Term Loans and accrued interest  thereon)  together with accrued
interest  thereon,  and (d) with respect to any LIBOR Revolving Loans prepaid in
connection  with such  termination  prior to the expiration date of the Interest
Period applicable thereto,  the payment of the amounts described in Section 5.4.
If the Revolving  Credit  Facility is terminated at any time prior to the Stated
Termination Date,  whether pursuant to this Section or pursuant to Section 11.2,
the Borrowers  jointly and severally agree to pay to the Agent,  for the account
of the Lenders,  an early  termination  fee  determined in  accordance  with the
following table:


Period during which                                       Early
 early termination                                     Termination
      occurs                                               Fee
      ------                                               ---

On or prior to the                             One percent (1%) of the
first Anniversary Date                         Maximum Revolver Amount at
                                               the time of termination.

After the first                                Three-quarters of one
Anniversary Date, but                          percent (.75 %) of the
on or prior to the                             Maximum Revolver Amount at
second Anniversary                             the time of termination.
Date

After the second  One-half of one percent  Anniversary  Date,  but (.50%) of the
Maximum  on or  prior  to  April  Revolver  Amount  at  the  time  23,  2000  of
termination.

After April 23, 2000.                          No early termination fee.

         4.3  Repayment  of the Term  Loans.  The  Borrowers  agree to repay the
principal  of the Term Loans to the Agent,  for the account of the  Lenders,  in
accordance with the terms of this Agreement and the Term Loan Notes.

         4.4 Voluntary  Prepayments of the Term Loans.  The Borrowers may prepay
the  principal of the Term Loans in whole or in part,  at any time and from time
to time  upon (a) at least  five (5)  Business  Days'  prior  written  notice by
Forstmann to the Agent and the Lenders,  and (b) payment of, with respect to any
LIBOR Term  Loans to be prepaid  prior to the  expiration  date of the  Interest
Period applicable  thereto,  the amounts described in Section 5.4. All voluntary
prepayments of the principal of the Term Loans shall be


<PAGE>



accompanied by the payment of all accrued but unpaid  interest on the Term Loans
to the date of prepayment.  Any voluntary  prepayment  under this Section 4.4 of
less than all of the outstanding principal of the Term Loans shall be applied to
the  installments  of  principal  of the  Term  Loans  in the  inverse  order of
maturity.  Amounts prepaid in respect of the Term Loans pursuant to this Section
4.4 may not be reborrowed.

         4.5 Mandatory  Prepayments of the Term Loans.  (a) The Borrowers  shall
prepay the entire unpaid  principal  balance of the Term Loans,  and all accrued
but unpaid  interest  thereon,  upon the  termination  of this Agreement for any
reason.

                      (b)     Any prepayment under this Section 4.5 of less than
all of the  outstanding  principal  amount of the Term Loans  shall be  applied,
based upon the Pro Rata Shares of the Lenders,  to the installments of principal
of the Term Loans in the inverse order of maturity.  Amounts  prepaid in respect
of the  Term  Loans  pursuant  to this  Section  4.5 may not be  reborrowed.  In
connection with any such  prepayment,  if any LIBOR Term Loans are prepaid prior
to the expiration date of the Interest Period applicable thereto,  the Borrowers
shall pay to the Lenders the amounts described in Section 5.4.

                      (c)     In the event that at the end of any Fiscal Year
there shall exist Excess Cash Flow (based on information  contained in Financial
Statements required under Section 7.2(a)) with respect to such Fiscal Year, then
on or before April 30 of the following  Fiscal Year, a prepayment equal to fifty
percent  (50%)  of such  Excess  Cash  Flow  shall  be made on the  Term  Loans;
provided, however, if the unpaid principal balance of the Term Loans is equal to
or less than  $23,300,212,  no  prepayment  pursuant to this  Section  4.5(c) in
respect of any subsequent Fiscal Year will be required.

         4.6  Payments  by the  Borrowers.  (a) All  payments  to be made by the
Borrowers shall be made without set-off,  recoupment or counterclaim.  Except as
otherwise  expressly provided herein, all payments by any Borrower shall be made
to the Agent for the account of the Lenders at the Agent's  address set forth in
Section 15.8, and shall be made in Dollars and in immediately  available  funds,
no later  than  12:00 noon (New York  time) on the date  specified  herein.  Any
payment  received  by the Agent  later than 12:00 noon (New York time)  shall be
deemed to have been  received on the following  Business Day and any  applicable
interest or fee shall continue to accrue.

                      (b)     Subject to the provisions set forth in the
definition  of "Interest  Period"  herein,  whenever any payment is due on a day
other than a Business Day, such payment shall be made on the following  Business
Day,  and  such  extension  of time  shall  in  such  case  be  included  in the
computation of interest or fees, as the case may be.

                      (c)     Unless the Agent receives notice from any Borrower
prior to the date on which any payment is due to the Lenders that such  Borrower
will not make such  payment in full as and when  required,  the Agent may assume
that the Borrowers have made such


<PAGE>



payment in full to the Agent on such date in immediately available funds and the
Agent may (but shall not be so  required),  in  reliance  upon such  assumption,
distribute  to each  Lender on such due date an amount  equal to the amount then
due such Lender.  If and to the extent the Borrowers  have not made such payment
in full to the Agent, each Lender shall repay to the Agent on demand such amount
distributed to such Lender,  together with interest thereon at the Federal Funds
Rate for each day from the date such amount is  distributed to such Lender until
the date repaid.

         4.7 Payments as Revolving Loans.  All payments of principal,  interest,
reimbursement  obligations in connection with Letters of Credit,  fees, premiums
and other sums  payable  hereunder,  including  all  reimbursement  for expenses
pursuant  to  Section  15.7,  may,  at the  option  of the  Agent,  in its  sole
discretion,  subject  only to the terms of this  Section  4.7,  be paid from the
proceeds of Revolving Loans made hereunder,  whether made following a request by
any  Borrower  pursuant to Section  2.2 or a deemed  request as provided in this
Section 4.7. The Borrowers hereby irrevocably  authorize the Agent to charge any
applicable  Loan  Account  for  the  purpose  of  paying  principal,   interest,
reimbursement  obligations in connection with Letters of Credit,  fees, premiums
and other sums payable  hereunder,  including  reimbursing  expenses pursuant to
Section 15.7, and agree that all such amounts charged shall constitute Revolving
Loans  (including  BABC Loans and Agent  Advances)  and that all such  Revolving
Loans so made shall be deemed to have been  requested by the Borrowers  pursuant
to Section 2.2.

         4.8  Apportionment,  Application  and Reversal of  Payments.  Aggregate
principal and interest  payments shall be apportioned  ratably among the Lenders
(according to the unpaid  principal  balance of the Loans to which such payments
relate held by each Lender) and payments of the fees shall,  as  applicable,  be
apportioned  ratably  among the Lenders.  All payments  shall be remitted to the
Agent and all such  payments  not  relating to principal or interest of specific
Loans,  or not  constituting  payment of  specific  fees,  and all  proceeds  of
Accounts or other Collateral  received by the Agent, shall be applied,  ratably,
subject to the provisions of this Agreement, first, to pay any fees, indemnities
or expense  reimbursements  including any amounts  relating to ACH  Transactions
then due to the Agent  from the  Borrowers;  second,  to pay any fees or expense
reimbursements  then  due to the  Lenders  from  the  Borrowers;  third,  to pay
interest due in respect of all Revolving  Loans,  including BABC Loans and Agent
Advances;  fourth,  to pay or  prepay  principal  of the BABC  Loans  and  Agent
Advances;  fifth, to pay or prepay  principal of the Revolving Loans (other than
BABC Loans and Agent Advances) and unpaid  reimbursement  obligations in respect
of Letters of Credit;  sixth, to pay or prepay  principal of the Term Loans; and
seventh,  to the payment of any other  Obligation due to the Agent or any Lender
by the  Borrowers.  Notwithstanding  anything to the contrary  contained in this
Agreement, unless so directed by the Borrowers, or unless an Event of Default is
outstanding,  neither the Agent nor any Lender shall apply any payments which it
receives  to any  LIBOR  Revolving  Loan  or  LIBOR  Term  Loan,  except  on the
expiration date of the Interest  Period  applicable to any such LIBOR Rate Loan.
The Agent shall promptly distribute to each Lender, pursuant to the


<PAGE>



applicable wire transfer instructions received from each Lender in writing, such
funds  as it may be  entitled  to  receive,  subject  to a  Settlement  delay as
provided  for in  Section  2.2(j).  The Agent  and the  Lenders  shall  have the
continuing and exclusive right to apply and reverse and reapply any and all such
proceeds and payments to any portion of the Obligations.

         4.9 Indemnity for Returned  Payments.  If, after receipt of any payment
of, or proceeds  applied to the payment of, all or any part of the  Obligations,
the Agent or any Lender is for any reason compelled to surrender such payment or
proceeds to any  Person,  because  such  payment or  application  of proceeds is
invalidated,  declared fraudulent,  set aside, determined to be void or voidable
as a preference, impermissible setoff, or a diversion of trust funds, or for any
other  reason,  then the  Obligations  or part thereof  intended to be satisfied
shall be revived and continue and this Agreement shall continue in full force as
if such payment or proceeds  had not been  received by the Agent or such Lender,
and the Borrowers shall be jointly and severally liable to pay to the Agent, and
hereby do indemnify the Agent and the Lenders and hold the Agent and the Lenders
harmless for, the amount of such payment or proceeds surrendered. The provisions
of this Section 4.9 shall be and remain effective  notwithstanding  any contrary
action  which may have been  taken by the Agent or any Lender in  reliance  upon
such payment or application of proceeds,  and any such contrary  action so taken
shall be without  prejudice  to the Agent's and the  Lenders'  rights under this
Agreement  and shall be deemed to have been  conditioned  upon such  payment  or
application of proceeds having become final and  irrevocable.  The provisions of
this Section 4.9 shall survive the termination of this Agreement.

         4.10 Agent's and Lenders' Books and Records;  Monthly Statements.  Each
of the  Borrowers  agrees that the Agent's and each  Lender's  books and records
showing the Obligations and the transactions  pursuant to this Agreement and the
other Loan  Documents  shall be admissible  in any action or proceeding  arising
therefrom,   and  shall  constitute   rebuttably   presumptive   proof  thereof,
irrespective of whether any Obligation is also evidenced by a promissory note or
other  instrument.  The Agent will provide to  Forstmann a monthly  statement of
Loans,  payments,  and  other  transactions  pursuant  to this  Agreement.  Such
statement shall be deemed correct, accurate, and binding on all Borrowers and an
account  stated  (except for  reversals and  reapplications  of payments made as
provided  in Section 4.8 and  corrections  of errors  discovered  by the Agent),
unless  Forstmann  notifies the Agent in writing to the contrary  within  thirty
(30) days after such statement is rendered. In the event a timely written notice
of objections is given by the  Borrowers,  only the items to which  exception is
expressly made will be considered to be disputed by the Borrowers.


                                                     ARTICLE 5

                                      TAXES, YIELD PROTECTION AND ILLEGALITY



<PAGE>



         5.1 Taxes.  (a) Any and all payments by the Borrowers to each Lender or
the Agent under this  Agreement and any other Loan  Document  shall be made free
and clear of, and without  deduction or withholding  for any Taxes. In addition,
the Borrowers shall pay all Other Taxes.

                      (b)     The Borrowers jointly and severally agree to
indemnify  and hold  harmless  each  Lender and the Agent for the full amount of
Taxes  or Other  Taxes  (including  any  Taxes or  Other  Taxes  imposed  by any
jurisdiction  on amounts  payable  under this Section) paid by the Lender or the
Agent and any liability  (including  penalties,  interest,  additions to tax and
expenses) arising  therefrom or with respect thereto,  whether or not such Taxes
or  Other  Taxes  were  correctly  or  legally  asserted.   Payment  under  this
indemnification  shall be made  within 30 days  after the date the Lender or the
Agent makes written demand therefor.

                      (c)     If any Borrower shall be required by law to deduct
or  withhold  any Taxes or Other  Taxes from or in  respect  of any sum  payable
hereunder to any Lender or the Agent, then:

                            (i)        the sum payable shall be increased as
necessary  so  that  after  making  all  required  deductions  and  withholdings
(including  deductions and  withholdings  applicable to additional  sums payable
under this  Section) such Lender or the Agent,  as the case may be,  receives an
amount  equal  to the sum it  would  have  received  had no such  deductions  or
withholdings been made;

                           (ii)    such Borrower shall make such deductions and
withholdings;

                          (iii)     the Borrowers jointly and severally agree to
pay the full amount deducted or withheld to the relevant taxing
authority or other authority in accordance with applicable law; and

                           (iv)      the Borrowers shall also agree jointly and
severally to pay to each Lender or the Agent for the account of such Lender,  at
the time interest is paid,  all additional  amounts which the respective  Lender
specifies as necessary  to preserve  the  after-tax  yield the Lender would have
received if such Taxes or Other Taxes had not been  imposed,  provided  that the
Borrowers shall not be required to make any payment pursuant to this clause (iv)
to or for the account of any Lender that is a foreign  corporation,  partnership
or trust within the meaning of Section  7701(a) of the Code if such Lender fails
to comply with Section 14.10(a).

                      (d)     Within 30 days after the date of any payment by
the  Borrowers of Taxes or Other Taxes,  Forstmann  shall  furnish the Agent the
original or a certified copy of a receipt evidencing  payment thereof,  or other
evidence of payment satisfactory to the Agent.

                      (e)     If any Borrower is required to pay additional
amounts to any Lender or the Agent  pursuant to subsection  (c) of this Section,
then such  Lender  shall  use  reasonable  efforts  (consistent  with  legal and
regulatory restrictions) to change the


<PAGE>



jurisdiction  of its  lending  office  so as to  eliminate  any such  additional
payment by the  Borrowers  which may  thereafter  accrue,  if such change in the
judgment of such Lender is not otherwise disadvantageous to such Lender.

                      (f)     Upon the request, and at the expense of the
Borrowers, each Lender to or for the account of which the Borrowers are required
to pay  additional  amounts  pursuant to  subsection  (c) of this Section  shall
afford  the  Borrowers  the  opportunity  to  contest,  and  cooperate  with the
Borrowers in  contesting,  the imposition of Taxes or Other Taxes giving rise to
such additional amount.

                      (g)     If any Lender receives a refund in respect of
Taxes or Other  Taxes for  which the  Borrowers  have  paid  additional  amounts
pursuant to subsection (c) of this Section,  such Lender shall promptly pay such
refund  (together  with any interest  with  respect  thereto  received  from the
relevant taxing authority) to the Borrowers,  provided that the Borrowers,  upon
the request of such  Lender,  shall repay the amount paid over to the  Borrowers
(plus interest with respect thereto due to the relevant taxing authority) in the
event  such  Lender is  required  to repay  such  refund or pay any tax  arising
therefrom to the applicable taxing authority.

                      (h)     The obligations of the Borrowers, the Lenders and
the Agent under this  Section 5.1 shall  survive the payment of all  Obligations
and the resignation or replacement of the Agent.

         5.2 Illegality.  (a) If any Lender  determines that the introduction of
any  Requirement  of Law,  or any change in any  Requirement  of Law,  or in the
interpretation  or  administration  of any  Requirement  of  Law,  has  made  it
unlawful, or that any central bank or other Governmental  Authority has asserted
that it is unlawful,  for any Lender or its  applicable  lending  office to make
LIBOR Rate Loans, then, on notice thereof by the Lender to each Borrower through
the Agent,  any  obligation  of that  Lender to make  LIBOR Rate Loans  shall be
suspended  until  the  Lender  notifies  the Agent  and each  Borrower  that the
circumstances giving rise to such determination no longer exist.

                      (b)     If a Lender determines that it is unlawful to
maintain any LIBOR Rate Loan, the Borrowers shall,  upon their receipt of notice
of such fact and demand from such Lender  (with a copy to the Agent),  prepay in
full such  LIBOR Rate  Loans of that  Lender  then  outstanding,  together  with
interest  accrued thereon and amounts  required under Section 5.4, either on the
last day of the Interest Period thereof,  if the Lender may lawfully continue to
maintain  such LIBOR Rate Loans to such day, or  immediately,  if the Lender may
not lawfully  continue to maintain  such LIBOR Rate Loan.  If the  Borrowers are
required  to so  prepay  any  LIBOR  Rate  Loan,  then  concurrently  with  such
prepayment,  the Borrowers shall borrow from the affected Lender,  in the amount
of such repayment, a Base Rate Loan.

         5.3          Increased Costs and Reduction of Return.  (a)  If any
Lender reasonably determines that, due to either (i) the
introduction of or any change in the interpretation of any law or


<PAGE>



regulation  or (ii) the  compliance by that Lender with any guideline or request
from any central bank or other Governmental Authority (whether or not having the
force of law) made or issued after the date hereof,  there shall be any increase
in the cost to such Lender of agreeing to make or making, funding or maintaining
any LIBOR Rate Loans,  then the Borrowers shall be jointly and severally  liable
for, and shall from time to time,  upon demand (with a copy of such demand to be
sent to the Agent), pay to the Agent for the account of such Lender,  additional
amounts as are sufficient to compensate such Lender for such increased costs.

                      (b)     If any Lender shall have reasonably determined
that (i) the introduction of any Capital Adequacy Regulation, (ii) any change in
any  Capital  Adequacy  Regulation,  (iii) any change in the  interpretation  or
administration  of any Capital Adequacy  Regulation by any central bank or other
Governmental   Authority  charged  with  the  interpretation  or  administration
thereof,  or (iv)  compliance by the Lender or any  corporation  or other entity
controlling the Lender with any Capital Adequacy Regulation made or issued after
the date  hereof,  affects or would  affect the  amount of capital  required  or
expected  to be  maintained  by the Lender or any  corporation  or other  entity
controlling  the Lender and (taking  into  consideration  such  Lender's or such
corporation's  or other entity's  policies with respect to capital  adequacy and
such Lender's desired return on capital)  reasonably  determines that the amount
of such capital is increased as a consequence of its Commitment,  loans, credits
or obligations  under this  Agreement,  then,  upon demand of such Lender to the
Borrowers through the Agent, the Borrowers,  jointly and severally, agree to pay
to the Lender, from time to time as specified by the Lender,  additional amounts
sufficient to compensate the Lender for such increase.

         5.4  Funding  Losses.  The  Borrowers  shall,  jointly  and  severally,
reimburse  each  Lender and hold each Lender  harmless  from any loss or expense
which the Lender may sustain or incur as a consequence of:

                      (a)     the failure of any Borrower to make on a timely
basis any payment of principal of any LIBOR Rate Loan;

                      (b)     the failure of any Borrower to borrow, continue or
convert a Loan  after  such  Borrower  has given (or is deemed to have  given) a
Notice of Borrowing or a Notice of Conversion/ Continuation;

                      (c)     the prepayment or other payment (including after
acceleration thereof) of a LIBOR Rate Loan on a day that is not the
last day of the relevant Interest Period;

including any such loss or expense  arising from the liquidation or reemployment
of funds obtained by it to maintain its LIBOR Rate Loans or from fees payable to
terminate the deposits from which such funds were obtained.

         5.5          Inability to Determine Rates.  If the Agent reasonably
determines that for any reason adequate and reasonable means do not
exist for determining the LIBOR Rate for any requested Interest


<PAGE>



Period with  respect to a proposed  LIBOR Rate Loan,  or that the LIBOR Rate for
any requested  Interest  Period with respect to a proposed  LIBOR Rate Loan does
not  adequately and fairly reflect the cost to the Lenders of funding such Loan,
the Agent will promptly so notify each Borrower and each Lender. Thereafter, the
obligation of the Lenders to make or maintain LIBOR Rate Loans  hereunder  shall
be suspended  until the Agent  revokes  such notice in writing.  Upon receipt of
such  notice,  the  Borrowers  may revoke any Notice of  Borrowing  or Notice of
Conversion/Continuation  then  submitted  by it. If the  Borrowers do not revoke
such Notice,  the Lenders shall make, convert or continue the Loans, as proposed
by the Borrowers,  in the amount specified in the applicable notice submitted by
the Borrowers, but such Loans shall be made, converted or continued as Base Rate
Loans instead of LIBOR Rate Loans.

         5.6  Certificates  of Lenders.  Any Lender  claiming  reimbursement  or
compensation under this Article 5 shall deliver to each Borrower (with a copy to
the Agent) a certificate  setting forth in reasonable  detail the amount payable
to the Lender hereunder and such certificate  shall be conclusive and binding on
the Borrowers in the absence of manifest error.

         5.7 Survival.  The agreements and  obligations of the Borrowers in this
Article 5 shall survive the payment of all other Obligations.


                                                     ARTICLE 6

                                                    COLLATERAL

         6.1 Grant of Security  Interest.  (a) As  security  for all present and
future  Obligations,  each of the Borrowers  hereby grants to the Agent, for the
ratable benefit of the Agent and the Lenders, a continuing security interest in,
and a perfected and enforceable first priority lien on, assignment of, and right
of set-off against, all of the following property of such Borrower,  whether now
owned or existing or hereafter acquired or arising, regardless of where located,
including, without limitation:

                            (i)  all Accounts;

                           (ii)  all Inventory;

                          (iii)  all contract rights, letters of credit,
Assigned Contracts, chattel paper, instruments, notes, documents,
and documents of title;

                           (iv)  all General Intangibles;

                            (v)  all Equipment;

                           (vi)  all money, investment property, securities
and other  property of any kind of such Borrower in the  possession or under the
control  of the Agent or any  Lender,  any  assignee  of or  participant  in the
Obligations, or a bailee of any such party or such party's affiliates;


<PAGE>



                          (vii)  all of such Borrower's deposit accounts,
credits and balances  with and other  claims  against the Agent or any Lender or
any of its  affiliates  or any  other  financial  institution  with  which  such
Borrower maintains deposits;

                         (viii)  all books, records and other property related
to or referring to any of the foregoing,  including, without limitation,  books,
records,  account ledgers, data processing records,  computer software and other
property and General  Intangibles  at any time  evidencing or relating to any of
the foregoing; and

                           (ix)        all accessions to, substitutions for and
replacements,  products and proceeds of any of the foregoing, including, but not
limited to,  proceeds of any insurance  policies,  claims against third parties,
and  condemnation  or  requisition  payments  with  respect to all or any of the
foregoing;

provided,  that the foregoing grant of a security interest shall not include (a)
a security  interest in any license,  patent license or trademark  license under
which such Borrower is a licensee or a security  interest in any Equipment lease
(or  Equipment  leased by such  Borrower  thereunder),  Real  Property  lease or
contract  relating  to Real  Property in effect as of the date hereof or entered
into by such Borrower  subsequent to the date hereof,  in each case which by its
terms  prohibits  the  grant  of the  security  interest  contemplated  by  this
Agreement,  unless  and  until  either  such  prohibition  is  terminated  or an
appropriate  consent is obtained,  in which event such license,  patent license,
trademark license,  Equipment lease (and the Equipment leased thereunder),  Real
Property lease or contract  relating to Real Property,  as applicable,  shall be
subject to the security  interest  granted  herein for all purposes;  or (b) the
Equipment  owned by Forstmann  which is subject to the security  interest on the
date hereof in favor of  Schlafhorst  Inc.  until such time as the Debt  related
thereto is paid in full.

All of the foregoing,  together with the Real Estate covered by the Mortgage(s),
and all other property of each of the Borrowers in which the Agent or any Lender
may at any time be granted a Lien,  is herein  collectively  referred  to as the
"Collateral."

                      (b)     As security for all Obligations, the Borrowers
have executed and delivered to the Agent the  Mortgage(s) to grant to the Agent,
for the ratable benefit of the Agent and the Lenders, a continuing mortgage lien
on the Real Estate and Premises.

                      (c)     All of the Obligations shall be secured by all of
the Collateral.

         6.2  Perfection and  Protection of Security  Interest.  (a) Each of the
Borrowers shall, at its expense, perform all steps requested by the Agent at any
time to perfect,  maintain,  protect, and enforce the Agent's Liens,  including,
without limitation: (i) executing, delivering and/or filing and recording of the
Mortgage(s)  and the Patent and  Trademark  Agreements  and executing and filing
financing  or  continuation  statements,  and  amendments  thereof,  in form and
substance satisfactory to the Agent;


<PAGE>



(ii) delivering to the Agent the originals of all  instruments,  documents,  and
chattel paper,  and all other Collateral of which the Agent determines it should
have physical  possession  in order to perfect and protect the Agent's  security
interest  therein,  duly  pledged,  endorsed or  assigned  to the Agent  without
restriction;  (iii)  delivering  to the Agent  warehouse  receipts  covering any
portion of the Collateral located in warehouses and for which warehouse receipts
are issued and  certificate of titles covering any portion of the Collateral for
which  certificates  of title  have been  issued;  (iv) when an Event of Default
exists,  transferring  Inventory  to  warehouses  designated  by the Agent;  (v)
placing  notations  on the  Borrower's  books of account to disclose the Agent's
security interest;  (vii) delivering to the Agent all letters of credit on which
any  Borrower is named  beneficiary;  and (viii)  taking such other steps as are
deemed  necessary  or desirable by the Agent to maintain and protect the Agent's
Liens. To the extent  permitted by applicable  law, the Agent may file,  without
the signature of any Borrower,  one or more financing statements  disclosing the
Agent's Liens. The Borrowers agree that a carbon, photographic,  photostatic, or
other  reproduction of this Agreement or of a financing  statement is sufficient
as a financing statement.

                      (b)     If any Collateral is at any time in the possession
or  control  of any  warehouseman,  bailee  or any of any  Borrower's  agents or
processors,  then such  Borrower  shall notify the Agent  thereof and,  upon the
Agent's request,  shall notify such Person of the Agent's  security  interest in
such  Collateral  and instruct such Person to hold all such  Collateral  for the
Agent's  account  subject to the Agent's  instructions.  The Agent hereby agrees
that it will not issue any such  instructions  pursuant to the previous sentence
unless an Event of Default has  occurred and is  continuing.  If at any time any
Collateral  is located on any  operating  facility of any Borrower  which is not
owned by such Borrower,  then such Borrower  shall, at the request of the Agent,
use  its  best  efforts  to  obtain  written  waivers,  in  form  and  substance
satisfactory to the Agent, of all present and future Liens to which the owner or
lessor of such premises may be entitled to assert  against the  Collateral.  The
Borrowers acknowledge and agree that, if and to the extent that the Borrowers do
not obtain any such waivers, the Agent shall be entitled to (i) reserve from the
Availability for the applicable Borrower an amount equal to up to 3 months' rent
with  respect  to the  Inventory  located on such  Premises  or (ii) if it would
result in a smaller reduction in Availability of the applicable Borrower,  treat
the Inventory  located on such Premises as ineligible  Inventory,  for each such
waiver not obtained by the Borrowers.

                      (c)     From time to time, each of the Borrowers shall,
upon the Agent's request,  execute and deliver  confirmatory written instruments
pledging to the Agent, for the ratable benefit of the Agent and the Lenders, the
Collateral  with respect to such Borrower,  but any Borrower's  failure to do so
shall not affect or limit any security interest or any other rights of the Agent
or any Lender in and to the Collateral with respect to such Borrower. So long as
this Agreement is in effect and until all Obligations have been fully satisfied,
the  Agent's  Liens shall  continue  in full force and effect in all  Collateral
(whether or not deemed eligible for the purpose of calculating the  Availability
of any Borrower or


<PAGE>



as the basis for any advance, loan, extension of credit, or other
financial accommodation).

         6.3  Location  of  Collateral.  Each of the  Borrowers  represents  and
warrants to the Agent and the Lenders  that:  (a)  Schedule 6.3 is a correct and
complete list of such  Borrower's  chief executive  office,  the location of its
books and records, the locations of the Collateral (except for (i) Equipment and
Inventory  temporarily  in transit  between such locations or (ii) (A) Equipment
and Inventory of Forstmann  temporarily  held by third parties for processing or
repairs,  and (B) work in process of FAI located  outside of the United  States,
valued at no more than  $5,000,000 in the aggregate  (based on the lower of cost
or fair market  value,  determined on a FIFO basis)) and the locations of all of
its other places of business;  and (b) Schedule 6.3 correctly  identifies any of
such  facilities  and locations  that are not owned by a Borrower and sets forth
the names of the owners and  lessors or  sublessors  of and, to the best of such
Borrower's  knowledge,  the holders of any  mortgages  on, such  facilities  and
locations.  Each of the  Borrowers  covenants  and  agrees  that it will not (i)
maintain any Collateral  (except for (i) Equipment and Inventory  temporarily in
transit  between such locations or (ii) (A) Equipment and Inventory of Forstmann
temporarily  held by third parties for  processing  or repairs,  and (B) work in
process of FAI  located  outside of the  United  States,  valued at no more than
$5,000,000  in the  aggregate  (based on the lower of cost or fair market value,
determined on a FIFO  basis))at any location other than those  locations  listed
for such Borrower on Schedule 6.3, (ii)  otherwise  change or add to any of such
locations,  or (iii) change the location of its chief executive  office from the
location  identified in Schedule 6.3,  unless it gives the Agent at least thirty
(30) days' prior  written  notice  thereof and  executes  any and all  financing
statements and other documents that the Agent requests in connection  therewith.
Upon the  establishment  of any such  location,  Schedule  6.3  shall be  deemed
amended to add such location  thereto without further action by the Agent or any
Borrower,  and the  Borrowers  hereby  authorize  the Agent to  substitute a new
Schedule  6.3  to  reflect  such  additional  location.   Without  limiting  the
foregoing,  each of the Borrowers  represents  that all of its Inventory  (other
than  Inventory  in transit or held by third  parties  for  processing)  is, and
covenants  that all of its  Inventory  will be,  located  either (a) on premises
owned by a Borrower,  (b) on premises  leased by a Borrower,  provided  that the
Agent has  received  an  executed  landlord  waiver  from the  landlord  of such
premises in form and  substance  satisfactory  to the Agent,  or (c) in a public
warehouse,  provided that the Agent has received an executed  bailee letter from
the applicable  public  warehouseman  in form and substance  satisfactory to the
Agent.

         6.4 Title to,  Liens on,  and Sale and Use of  Collateral.  Each of the
Borrowers  represents  and warrants to the Agent and the Lenders and agrees with
the Agent and the Lenders that:  (a) all of the  Collateral is and will continue
to be owned by such Borrower free and clear of all Liens whatsoever,  except for
Permitted  Liens; (b) the Agent's Liens in the Collateral will not be subject to
any  prior  Lien,  except  Permitted  Liens,  described  in  clause  (i)  of the
definition of "Permitted Liens" and Permitted Liens if and to the


<PAGE>



extent that such Permitted Liens constitute prior Liens under any Requirement of
Law or, in the case of Real Estate,  Permitted Liens described in clause (vi) of
the  definition of "Permitted  Liens";  (c) such Borrower will use,  store,  and
maintain the Collateral  with all reasonable  care and will use such  Collateral
for lawful  purposes only;  and (d) such Borrower will not,  without the Agent's
prior written approval, sell, or dispose of or permit the sale or disposition of
any of the  Collateral  except for sales of Inventory in the ordinary  course of
business  and sales of  Equipment  as  permitted  by  Section  6.11 and sales of
Accounts,  which are not Eligible Accounts as a result of being past due, to The
CIT Group/Commercial  Services,  Inc. ("CIT") pursuant to (i) the certain Credit
Approved  Receivables  Purchasing  Agreement dated as of March 13, 1998, between
Forstmann and CIT, as amended by First Amendment to Credit Approved  Receivables
Purchasing  Agreement  and  Second  Amendment  to  Credit  Approved  Receivables
Purchasing  Agreement,  each dated as of March 13, 1998, as such Agreement is in
effect on March 13, 1998 (the "Forstmann/CIT Agreement"),  and (ii) that certain
Credit Approved Receivables Purchasing Agreement dated as of September 11, 1998,
between  FAI and  CIT]  (the  "FAI/CIT  Agreement",  and  collectively  with the
Forstmann/CIT Agreement, the "CIT Agreements"). The inclusion of proceeds in the
Collateral shall not be deemed to constitute the Agent's or any Lender's consent
to any sale or other disposition of the Collateral except as expressly permitted
herein.

         6.5 Appraisals.  Whenever a Default or Event of Default exists,  and at
such other  times not more  frequently  than once a year as the Agent  requests,
each of the  Borrowers  shall,  at its  expense  and upon the  Agent's  request,
provide  the Agent  with  appraisals  or  updates  thereof  of any or all of the
Collateral  from an  appraiser,  and  prepared on a basis,  satisfactory  to the
Agent, such appraisals and updates to include,  without limitation,  information
required by applicable law and  regulation  and by the internal  policies of the
Lenders.

         6.6 Access and Examination;  Confidentiality. (a) Upon reasonable prior
notice  to any  Borrower  (unless  an  Event  of  Default  has  occurred  and is
continuing, in which case no notice is necessary), the Agent, accompanied by any
Lender which so elects,  may at all  reasonable  times during  regular  business
hours (and at any time when a Default or Event of Default  exists)  have  access
to,  examine,  audit,  make extracts from or copies of and inspect any or all of
such Borrower's  records,  files,  and books of account and the Collateral,  and
discuss such Borrower's  affairs with such  Borrower's  officers and management.
Each of the Borrowers will deliver to the Agent any instrument necessary for the
Agent to obtain  records from any service  bureau  maintaining  records for such
Borrower.  The Agent may, and at the direction of the Majority Lenders shall, at
any time when a  Default  or Event of  Default  exists,  and at such  Borrower's
expense,  make copies of all of such  Borrower's  books and records,  or require
such  Borrower  to  deliver  such  copies to the Agent.  The Agent may,  without
expense  to the  Agent,  use  such  of  such  Borrower's  respective  personnel,
supplies,  and  premises  as may be  reasonably  necessary  for  maintaining  or
enforcing the Agent's Liens. The Agent shall have the right, at any time, in the
Agent's name or in the name of a nominee of the


<PAGE>



Agent,  to verify  the  validity,  amount or any other  matter  relating  to the
Accounts, Inventory, or other Collateral, by mail, telephone, or otherwise.

                      (b)     Each of the Borrowers agrees that, subject to such
Borrower's prior consent for uses other than in a traditional  tombstone,  which
consent shall not be unreasonably withheld or delayed, the Agent and each Lender
may use such  Borrower's  name in advertising  and  promotional  material and in
conjunction  therewith  disclose the general terms of this Agreement.  The Agent
and each Lender  acknowledge that certain  information  concerning the Borrowers
which is obtained by or furnished to the Agent and such Lenders pursuant to this
Agreement,  including, without limitation,  pursuant to this Section 6.6(b), may
be non-public,  proprietary or confidential in nature. The Agent and each Lender
agree  to take  normal  and  reasonable  precautions  and  exercise  due care to
maintain the  confidentiality  of all such information  provided to the Agent or
such Lender by or on behalf of the Borrowers,  under this Agreement or any other
Loan  Document,  and  neither  the  Agent,  nor  such  Lender  nor any of  their
respective  Affiliates shall use any such  information  other than in connection
with or in enforcement of this Agreement and the other Loan Documents, except to
the extent that such information (i) was or becomes  generally  available to the
public other than as a result of disclosure by the Agent or such Lender, or (ii)
was or becomes available on a nonconfidential basis from a source other than the
Borrowers, provided that such source is not bound by a confidentiality agreement
with the Borrowers known to the Agent or such Lender;  provided,  however,  that
the Agent and any Lender may  disclose  such  information  (1) at the request or
pursuant to any requirement of any Governmental  Authority to which the Agent or
such Lender is subject or in connection with an examination of the Agent or such
Lender by any such  Governmental  Authority;  (2)  pursuant to subpoena or other
court process;  (3) when required to do so in accordance  with the provisions of
any  applicable  requirement  of law; (4) to the extent  reasonably  required in
connection with any litigation or proceeding (including, but not limited to, any
bankruptcy  proceeding)  to which the  Agent,  any  Lender  or their  respective
Affiliates  may be party;  (5) to the extent  reasonably  required in connection
with the exercise of any remedy hereunder or under any other Loan Document;  (6)
to the Agent's or such Lender's independent auditors, accountants, attorneys and
other  professional  advisors;  (7) to any  prospective  Participant or assignee
under any Assignment  and  Acceptance,  actual or potential,  provided that such
prospective Participant or assignee agrees to keep such information confidential
to the same  extent  required  of the Agent and the  Lenders  hereunder;  (8) as
expressly permitted under the terms of any other document or agreement regarding
confidentiality to which any Borrower is party or is deemed party with the Agent
or such Lender, and (9) to its Affiliates.

         6.7 Collateral  Reporting.  Each of the Borrowers  shall provide to the
Agent the following reports,  documents and materials:  (i) upon request, copies
of invoices in connection  with  Accounts,  customer  statements,  credit memos,
remittance advices and reports,  deposit slips,  shipping and delivery documents
in connection with the Accounts and for Inventory and Equipment


<PAGE>



acquired by such  Borrower,  purchase  orders and invoices;  and (ii) such other
reports  as to such  Borrower  or its  property  as the Agent  shall  reasonably
request from time to time. In addition,  each of the Borrowers shall provide the
Agent with the reports,  documents and other materials described in Schedule 6.7
at the times set forth therein.  All reports,  documents and materials  provided
pursuant to this Section 6.7 shall be in form and substance  satisfactory to the
Agent and shall be accompanied by certificates  of such Borrower  executed by an
officer thereof  certifying as to the accuracy and  completeness of the included
matter.  If any such  reports,  documents or other  materials are prepared by an
accounting  service or other agent, such Borrower hereby authorizes such service
or agent to deliver same to the Agent, for distribution to the Lenders.

         6.8 Accounts.  (a) Each of the Borrowers hereby represents and warrants
to the Agent and the  Lenders,  with  respect to the  Accounts,  that:  (i) each
existing Account represents, and each future Account will represent, a bona fide
sale or lease and delivery of goods by such  Borrower,  or rendition of services
by such Borrower, in the ordinary course of such Borrower's business;  (ii) each
existing  Account is, and each future  Account will be, for a liquidated  amount
payable by the  Account  Debtor  thereon  on the terms set forth in the  invoice
therefor or in the schedule thereof delivered to the Agent,  without any offset,
deduction,  defense,  or  counterclaim  except  those  properly  reflected  on a
Borrowing  Base  Certificate;  (iii) no payment will be received with respect to
any Account, and no credit,  discount, or extension,  or agreement therefor will
be granted on any  Account,  except as  reported to the Agent and the Lenders in
accordance  with  this  Agreement  or  except  pursuant  to the terms of the CIT
Agreements; (iv) each copy of an invoice delivered to the Agent by such Borrower
will be a genuine copy of the original  invoice sent to the Account Debtor named
therein;  (v) except in the case of invoices relating to Bill and Hold Accounts,
all goods  described in any invoice  representing a sale of goods will have been
delivered to the Account  Debtor and all services of such Borrower  described in
each invoice will have been performed; and (vi) in the case of invoices relating
to Eligible Bill and Hold Accounts, all goods described in any such invoice will
be  shipped  and  delivered  within (A) the later of (I) the season in which the
invoice is  rendered  or (II) six months  after the date on which the invoice is
rendered or (B) the time specified in the invoice.

                      (b)     No Borrower shall re-date any invoice or sale or
make sales on extended dating beyond that customary in such Borrower's  business
or extend or modify any Account,  other than in the ordinary  course of business
consistent  with  past  practices  and other  than as  properly  reflected  on a
Borrowing  Base  Certificate.  If such  Borrower  becomes  aware  of any  matter
adversely  affecting  the  collectability  of  any  Account  or  Account  Debtor
involving  an  amount  greater  than  $250,000,  in the case of  Forstmann,  and
$50,000,  in the  case of  FAI,  including  information  regarding  the  Account
Debtor's creditworthiness, such Borrower will promptly so advise the Agent.



<PAGE>



                      (c)     No Borrower shall accept any note or other
instrument  (except a check or other  instrument  for the  immediate  payment of
money) with respect to any Account,  except for such notes and other instruments
described in clause (f) of the  definition of "Restricted  Investment,"  without
the Agent's written consent. If the Agent consents to the acceptance of any such
instrument,  it shall be  considered  as evidence of the Account and not payment
thereof and such Borrower will  promptly  deliver such  instrument to the Agent,
endorsed  by such  Borrower to the Agent,  if so  requested  by the Agent,  in a
manner satisfactory in form and substance to the Agent.

                      (d)     Each of the Borrowers shall notify the Agent
promptly  of all  disputes  and  claims in excess  of  $250,000,  in the case of
Forstmann,  and $50,000,  in the case of FAI,  individually,  or $500,000 in the
case of Forstmann,  and $100,000 in the case of FAI, in the  aggregate  with any
Account Debtor, and agrees to settle,  contest,  or adjust such dispute or claim
at no expense to the Agent or any Lender. No discount, credit or allowance shall
be granted to any such Account Debtor without the Agent's prior written consent,
except for  discounts,  credits  and  allowances  made or given in the  ordinary
course of such  Borrower's  business when no Event of Default exists  hereunder.
Each of the Borrowers  shall send the Agent a copy of each credit  memorandum in
excess of $250,000,  in the case of Forstmann,  and $50,000, in the case of FAI,
as soon as issued.  The Agent may, and at the direction of the Majority  Lenders
shall, at all times when an Event of Default exists hereunder,  settle or adjust
disputes and claims  directly  with  Account  Debtors for amounts and upon terms
which the Agent or the Majority Lenders, as applicable, shall consider advisable
and, in all cases,  the Agent will credit such Borrower's Loan Account with only
the net amounts received by the Agent in payment of any Accounts.

                      (e)     If an Account Debtor returns any Inventory to any
Borrower  when no Event of Default  exists,  then such Borrower  shall  promptly
determine the reason for such return and shall issue a credit  memorandum to the
Account Debtor in the appropriate amount. Such Borrower shall immediately report
to the Agent any return  involving an amount in excess of $250,000,  in the case
of Forstmann,  and $50,000,  in the case of FAI. Each such report shall indicate
the reasons for the returns and the  locations  and  condition  of the  returned
Inventory.  In the event any Account  Debtor  returns  Inventory to any Borrower
when an Event of  Default  exists,  such  Borrower,  upon  request of the Agent,
shall:  (i) hold the returned  Inventory in trust for the Agent;  (ii) segregate
all returned  Inventory  from all of its other  property;  (iii)  dispose of the
returned  Inventory  solely according to the Agent's written  instructions;  and
(iv) not issue any  credits or  allowances  with  respect  thereto  without  the
Agent's prior written  consent.  All returned  Inventory shall be subject to the
Agent's Liens thereon.  Whenever any Inventory is returned,  the related Account
shall be deemed  ineligible  to the  extent of the amount  owing by the  Account
Debtor with respect to such returned Inventory

         6.9          Collection of Accounts; Payments.  (a) Until the Agent
notifies each of the Borrowers to the contrary, the Borrowers shall


<PAGE>



make  collection  of all  Accounts  and other  Collateral  for the Agent,  shall
receive all payments as the Agent's trustee,  and shall  immediately,  and in no
event later than the Business Day on which such payments are  received,  deliver
all  payments  in their  original  form duly  endorsed  in blank  into a Payment
Account  established  for  the  accounts  of  each  of the  Borrowers  at a bank
acceptable to Agent and subject to documentation reasonably acceptable to Agent.
The Borrowers shall maintain a lock-box service for collections of Accounts at a
bank  acceptable  to  the  Agent  and  pursuant  to   documentation   reasonably
satisfactory  to the Agent.  All Account Debtors have been or will be instructed
to make all payments directly to the address  established for such service.  If,
notwithstanding  such  instructions,  any  Borrower  receives  any  proceeds  of
Accounts,  it shall  receive  such  payments as the Agent's  trustee,  and shall
immediately  deliver  such  payments  to the Agent in their  original  form duly
endorsed  in blank or  deposit  them  into a Payment  Account,  as the Agent may
direct.  All  collections  received in any such  lock-box or Payment  Account or
directly by any Borrower or the Agent,  and all funds in any Payment  Account or
other account to which such  collections  are deposited  shall be subject to the
Agent's sole control.  The Agent or the Agent's  designee may, at any time after
the  occurrence  of an Event of Default and for so long as such Event of Default
is continuing,  notify  Account  Debtors that the Accounts have been assigned to
the Agent and of the Agent's  security  interest  therein,  and may collect them
directly and charge the  collection  costs and expenses to the  Borrowers'  Loan
Accounts as a Revolving Loan. So long as an Event of Default has occurred and is
continuing,  each of the Borrowers,  at the Agent's  request,  shall execute and
deliver  to the Agent such  documents  as the Agent  shall  require to grant the
Agent  access  to any post  office  box in which  collections  of  Accounts  are
received.

                      (b)     If sales of Inventory are made or services are
rendered for cash, each of the Borrowers shall immediately  deliver to the Agent
or deposit into a Payment Account the cash which the such Borrower receives.

                      (c)  All payments, including immediately available
funds received by the Agent at a bank designated by it, received by the Agent on
account of Accounts or as proceeds of other  Collateral will be the Agent's sole
property  for its benefit and the benefit of the Lenders and will be credited to
the respective  Borrower's  Loan Accounts  (conditional  upon final  collection)
after allowing one (1) Business Day for collection; provided, however, that such
payments  shall be deemed  to be  credited  to the  respective  Borrower's  Loan
Accounts immediately upon receipt for purposes of (i) determining  Availability,
(ii)  calculating  the  unused  line fee  pursuant  to  Section  3.5,  and (iii)
calculating the amount of interest to be distributed by the Agent to the Lenders
(but not the amount of interest payable by the Borrowers).

                      (d)     In the event the Borrowers repay all of the
Obligations  upon the termination of this Agreement or upon  acceleration of the
Obligations,  other than  through the Agent's  receipt of payments on account of
the Accounts or proceeds of the other Collateral,  such payment will be credited
(conditional  upon final  collection)  to the  Borrowers'  Loan  Accounts on the
Business


<PAGE>



Day on which the Agent receives such funds,  if the Agent receives such funds by
2:00 p.m. (New York time),  or, if the Agent receives such funds after 2:00 p.m.
(New York time), on the Business Day after the Agent's receipt of such funds.

         6.10 Inventory;  Perpetual Inventory.  Each of the Borrowers represents
and  warrants  to the Agent and the  Lenders  and agrees  with the Agent and the
Lenders that all of the Inventory  owned by such Borrower  (except for Inventory
constituting  raw  materials)  is and will be held for sale or  lease,  or to be
furnished in connection  with the rendition of services,  in the ordinary course
of such  Borrower's  business,  and is and will be fit for such  purposes.  Such
Borrower will use its best efforts to keep its Inventory in good and  marketable
condition,  at its own expense.  Such  Borrower will not accept any Inventory on
consignment  or  approval  except for such  Inventory  properly  reflected  on a
Borrowing Base Certificate.  Such Borrower agrees that all Inventory produced in
the United  States will be produced in  accordance  with the Federal  Fair Labor
Standards Act of 1938, as amended from time to time, and all rules, regulations,
and orders  thereunder.  Such  Borrower  will  conduct a  physical  count of the
Inventory at least once per Fiscal Year,  and after and during the  continuation
of an Event of Default, at such other times as the Agent requests. Such Borrower
will maintain a perpetual inventory reporting system at all times. Such Borrower
will  not,  without  the  Agent's  written  consent,  sell  any  Inventory  on a
guaranteed  sale,  sale and  return,  sale on  approval,  consignment,  or other
repurchase  or return  basis,  except  that FAI may do so  without  the  Agent's
consent,  provided that (i) it is for  promotional  purposes and in the ordinary
course of its business,  and (ii) an amount equal to the value of such Inventory
shall have been included in the Promotional Reserve for FAI.

         6.11  Equipment.  (a) Each of the Borrowers  represents and warrants to
the Agent and the Lenders and agrees with the Agent and the Lenders  that all of
the Equipment owned by such Borrower is and will be used or held for use in such
Borrower's  business,  and is and  will be fit for  such  purposes.  Each of the
Borrowers  shall, in the ordinary course of its business,  keep and maintain its
Equipment  in good  operating  condition  and  repair  (ordinary  wear  and tear
excepted) and shall, in the ordinary course of its business,  make all necessary
replacements thereof.

                      (b)     Each of the Borrowers shall promptly inform the
Agent of any material additions to or deletions from the Equipment.  No Borrower
shall permit any  Equipment to become a fixture with respect to real property or
to become an accession with respect to other  personal  property with respect to
which real or  personal  property  the Agent does not have a Lien.  No  Borrower
shall,  without  the  Agent's  prior  written  consent,   alter  or  remove  any
identifying symbol or number on any of such Borrower's  Equipment  consisting of
Collateral.

                      (c)     No Borrower shall, without the Agent's prior
written consent,  sell, lease as a lessor,  or otherwise  dispose of any of such
Borrower's  Equipment;  provided,  however,  that such  Borrower  may dispose of
obsolete or unusable Equipment having an


<PAGE>



orderly  liquidation  value no greater than  $500,000 in the  aggregate  for all
Borrowers in any Fiscal Year,  or  $2,500,000 in the aggregate for all Borrowers
during the term of this Agreement,  without the Lender's consent, subject to the
conditions set forth in the next sentence. In the event any of such Equipment is
sold,  transferred or otherwise disposed of pursuant to the proviso contained in
the immediately preceding sentence, (1) if such sale, transfer or disposition is
effected  without the reinvestment of the proceeds thereof in other Equipment to
be used by such Borrower in its business,  then such Borrower  shall deliver all
of the cash  proceeds of any such sale,  transfer or  disposition  to the Agent,
which  proceeds  shall be  applied  to the  reduction  of the Term  Loan (in the
inverse order of maturity), or (2) if such sale, transfer or disposition is made
in connection with the purchase by such Borrower of other  Equipment,  then such
Borrower  shall use the  proceeds  of such  sale,  transfer  or  disposition  to
purchase such other Equipment and shall deliver to the Agent written evidence of
the use of the proceeds for such purchase. All such other Equipment purchased by
such Borrower shall be free and clear of all Liens except the Agent's Lien.

         6.12 Assigned Contracts.  Each of the Borrowers shall fully perform all
of its obligations under each of the Assigned  Contracts,  and shall enforce all
of its rights and remedies thereunder,  in each case, as it deems appropriate in
its business judgment; provided, however, that no Borrower shall take any action
or fail to take any action with  respect to its Assigned  Contracts  which would
cause the  termination of a material  Assigned  Contract.  Without  limiting the
generality  of the  foregoing,  each of the  Borrowers  shall  take  all  action
necessary or  appropriate  to permit,  and shall not take any action which would
have  any  materially   adverse  effect  upon,  the  full   enforcement  of  all
indemnification rights under its Assigned Contracts.  No Borrower shall, without
the Agent's and the Majority  Lenders'  prior written  consent,  modify,  amend,
supplement,  compromise,  satisfy,  release,  or  discharge  any of its material
Assigned Contracts, any collateral securing the same, any Person liable directly
or indirectly  with respect  thereto,  or any  agreement  relating to any of its
material Assigned Contracts or the collateral  therefor in any material respect.
Each of the  Borrowers  shall  notify  the Agent  and the  Lenders  in  writing,
promptly after such Borrower  becomes aware thereof,  of any event or fact which
could give rise to a claim by it for  indemnification  under any of its Assigned
Contracts  in excess of  $100,000,  and shall  diligently  pursue such right and
report to the Agent on all further  developments  with respect  thereto.  If any
Borrower  shall fail after the  Agent's  demand to pursue  diligently  any right
under its Assigned  Contracts,  or if an Event of Default then exists, the Agent
may, and at the direction of the Majority  Lenders shall,  directly enforce such
right in its own or such Borrower's name and may enter into such  settlements or
other agreements with respect thereto as the Agent or the Majority  Lenders,  as
applicable,  shall determine.  In any suit,  proceeding or action brought by the
Agent for the benefit of the Lenders  under any  Assigned  Contract  for any sum
owing  thereunder  or to enforce any  provision  thereof,  the  Borrowers  shall
jointly and severally indemnify and hold the Agent and Lenders harmless from and
against all expense, loss or damage suffered by reason of any defense,


<PAGE>



setoff,  counterclaims,  recoupment, or reduction of liability whatsoever of the
obligor  thereunder  arising out of a breach by any  Borrower of any  obligation
thereunder or arising out of any other  agreement,  indebtedness or liability at
any  time  owing  from  any  Borrower  to or in  favor  of such  obligor  or its
successors; provided that no Borrower shall be under any obligation to indemnify
the Agent or the Lenders with respect to any expense,  loss or damage  caused by
or resulting from the willful misconduct or gross negligence of the Agent or any
Lender.  All such  obligations of the Borrowers shall be and remain  enforceable
only  against  the  Borrowers  and shall not be  enforceable  against the Agent.
Notwithstanding any provision hereof to the contrary, each Borrower shall at all
times  remain  liable to observe and  perform all of its duties and  obligations
under its Assigned Contracts, and the Agent's or any Lender's exercise of any of
their  respective  rights with respect to the Collateral  shall not release such
Borrower  from any of such  duties and  obligations.  Neither  the Agent nor any
Lender  shall be  obligated  to perform or fulfill any of  Borrower's  duties or
obligations under its Assigned Contracts or to make any payment  thereunder,  or
to make any inquiry as to the nature or  sufficiency  of any payment or property
received  by it  thereunder  or the  sufficiency  of  performance  by any  party
thereunder, or to present or file any claim, or to take any action to collect or
enforce any  performance,  any payment of any  amounts,  or any  delivery of any
property.

         6.13 Documents,  Instruments,  and Chattel Paper. Each of the Borrowers
represents  and  warrants to the Agent and the Lenders  that (a) all  documents,
instruments,   and  chattel  paper  describing,   evidencing,   or  constituting
Collateral,  and all  signatures  and  endorsements  thereon,  are  and  will be
complete,  valid,  and genuine,  and (b) all goods  evidenced by such documents,
instruments,  and chattel paper are and will be owned by such Borrower, free and
clear of all Liens other than Permitted Liens.

         6.14 Right to Cure. The Agent may, in its discretion, and shall, at the
direction of the Majority Lenders,  pay any amount or do any act required of any
Borrower  hereunder  or under  any other  Loan  Document  in order to  preserve,
protect,  maintain or enforce the  Obligations,  the  Collateral  or the Agent's
Liens therein,  and which such Borrower fails to pay or do,  including,  without
limitation,  payment  of any  judgment  against  such  Borrower,  any  insurance
premium,   any  warehouse  charge,  any  finishing  or  processing  charge,  any
landlord's claim, and any other Lien upon or with respect to the Collateral. All
payments  that the Agent makes  under this  Section  6.14 and all  out-of-pocket
costs and expenses that the Agent pays or incurs in  connection  with any action
taken by it  hereunder  shall be charged to such  Borrower's  Loan  Account as a
Revolving  Loan.  Any payment made or other action taken by the Agent under this
Section  6.14  shall be  without  prejudice  to any  right to assert an Event of
Default hereunder and to proceed thereafter as herein provided.

         6.15 Power of Attorney. Each of the Borrowers hereby appoints the Agent
and the Agent's designee as the Borrower's attorney,  with power: (a) to endorse
such Borrower's name on any checks, notes,  acceptances,  money orders, or other
forms of payment


<PAGE>



or security that come into the Agent's or any Lender's  possession;  (b) to sign
such Borrower's name on any invoice, bill of lading,  warehouse receipt or other
document of title relating to any Collateral,  on drafts against  customers,  on
assignments  of Accounts,  on notices of  assignment,  financing  statements and
other public  records and to file any such  financing  statements  by electronic
means with or without a signature as authorized or required by applicable law or
filing  procedure;  (c) to notify  the post  office  authorities  to change  the
address for delivery of such  Borrower's  mail to an address  designated  by the
Agent and to receive,  open and dispose of all mail  addressed to such Borrower;
(d) to send  requests  for  verification  of  Accounts to  customers  or Account
Debtors; (e) to clear Inventory, the purchase of which was financed with Letters
of Credit,  through customs in the Borrower's name, the Agent's name or the name
of the Agent's designee,  and to sign and deliver to customs officials powers of
attorney  in such  Borrower's  name for such  purpose;  and (f) to do all things
necessary to carry out this  Agreement.  The Agent agrees that,  except upon the
occurrence  and  during the  continuation  of an Event of  Default,  it will not
exercise  the power of attorney or any rights  granted to the Agent  pursuant to
this  Section  6.15,  except  for the right  granted  in clause (b) to sign such
Borrower's name on any financing  statements and the right granted in clause (d)
to send requests for  verification of Accounts to customers or Account  Debtors.
Each of the Borrowers  ratifies and approves all acts of such attorney.  None of
the  Lenders  or the Agent nor their  attorneys  will be liable  for any acts or
omissions  or for any error of  judgment  or mistake of fact or law,  except for
gross  negligence  or willful  misconduct.  This power,  being  coupled  with an
interest,  is  irrevocable  until this  Agreement  has been  terminated  and the
Obligations have been fully satisfied.

         6.16 The Agent's and Lenders' Rights,  Duties and Liabilities.  Each of
the Borrowers assumes all  responsibility and liability arising from or relating
to the use, sale or other  disposition of the Collateral.  The Obligations shall
not be  affected  by any failure of the Agent or any Lender to take any steps to
perfect  the Agent's  Liens or to collect or realize  upon the  Collateral,  nor
shall loss of or damage to the  Collateral  release any Borrower from any of the
Obligations.  Following the occurrence and  continuation of an Event of Default,
the Agent may (but  shall  not be  required  to),  and at the  direction  of the
Majority Lenders shall, without notice to or consent from any Borrower, sue upon
or otherwise collect,  extend the time for payment of, modify or amend the terms
of, compromise or settle for cash,  credit,  or otherwise upon any terms,  grant
other indulgences,  extensions, renewals, compositions, or releases, and take or
omit to take any other  action  with  respect to the  Collateral,  any  security
therefor,  any agreement relating thereto,  any insurance applicable thereto, or
any  Person  liable  directly  or  indirectly  in  connection  with  any  of the
foregoing,  without  discharging  or otherwise  affecting  the  liability of the
Borrowers for the Obligations or under this Agreement or any other agreement now
or hereafter existing between the Agent and/or any Lender and any Borrower.



<PAGE>



         6.17  Site  Visits,   Observations  and  Testing.  The  Agent  and  its
representatives  will have the right at any  reasonable  time,  but no more than
twice  during any twelve month  period,  to enter and visit the Premises and any
other place where any  property of any  Borrower is located for the  purposes of
observing the Premises, and to determine such Borrower's compliance with Section
9.7(a);  provided,  however,  (i) upon the  occurrence of an Event of Default or
(ii) if the Agent reasonably believes that a material change has occurred to the
Premises or to the soil or  groundwater at any other place where any property of
such  Borrower is located,  the Agent may  reinspect  the  Premises or the place
where the  property  of such  Borrower is located as  frequently  as Agent deems
necessary.  Agent may  request any  Borrower  to confirm (to Agent's  reasonable
satisfaction)  that its  generation,  handling,  use,  storage or  disposal of a
Contaminant is in compliance with all Environmental  Laws. If any Borrower fails
to do so within a reasonable time after Agent's written  request,  the Agent may
require  such  Borrower  to  retain  an  independent   environmental  consultant
reasonably  acceptable to the Agent to evaluate such Borrower's  compliance with
Environmental  Laws. If any Borrower  refuses to do so, the Agent may retain (at
the  Borrowers'   expense)  its  own  environmental   consultant  to  make  such
evaluation.  The  Agent  is  under no duty,  however,  to visit or  observe  the
Premises or to conduct tests,  and any such acts by the Agent will be solely for
the purposes of protecting  the Agent's Liens and  preserving  the Agent and the
Lenders' rights under this Agreement.  No site visit,  observation or testing by
the Agent and the Lenders will result in a waiver of any default of any Borrower
or impose any  liability on the Agent or the Lenders.  In no event will any site
visit,  observation or testing by the Agent be a  representation  that hazardous
substances  are or are not present in, on or under the  Premises,  or that there
has been or will be compliance with any law, regulation or ordinance  pertaining
to hazardous  substances or any other applicable  governmental  law. Neither any
Borrower nor any other party is entitled to rely on any site visit,  observation
or  testing  by the  Agent.  The  Agent and the  Lenders  owe no duty of care to
protect any  Borrower or any other party  against,  or to inform any Borrower or
any other party of, any  hazardous  substances  or any other  adverse  condition
affecting  the  Premises.  The  Agent  may in  its  discretion  disclose  to the
Borrowers  or any other party any report or findings  made as a result of, or in
connection  with,  any site  visit,  observation  or testing by the Agent.  Each
Borrower   understands   and  agrees   that  the  Agent  makes  no  warranty  or
representation to such Borrower or any other party regarding the truth, accuracy
or  completeness  of any such report or  findings  that may be  disclosed.  Each
Borrower  also  understands  that  depending  on the  results of any site visit,
observation  or  testing  by the  Agent and  disclosed  to such  Borrower,  such
Borrower  may  have a legal  obligation  to  notify  one or  more  environmental
agencies of the results, that such reporting requirements are site-specific, and
are to be evaluated  by such  Borrower  without  advice or  assistance  from the
Agent. In each instance,  the Agent will give the applicable Borrower reasonable
advance  notice  before  entering  the  Premises or any other place the Agent is
permitted  to enter  under this  Section  6.17.  The Agent will make  reasonable
efforts to avoid  interfering  with any  Borrower's  use of the  Premises or any
other property in exercising any rights provided hereunder.


<PAGE>




                                    ARTICLE 7

                BOOKS AND RECORDS; FINANCIAL INFORMATION; NOTICES

         7.1 Books and Records.  Each of the Borrowers  shall  maintain,  at all
times,  correct and  complete  books,  records and  accounts in which  complete,
correct and timely entries are made of its  transactions in accordance with GAAP
applied  consistently  with the  audited  Financial  Statements  required  to be
delivered  pursuant  to  Section  7.2(a).  Each  Borrower  shall,  by  means  of
appropriate  entries,  reflect in such accounts and in all Financial  Statements
proper  liabilities  and  reserves  for  all  taxes  and  proper  provision  for
depreciation  and amortization of property and bad debts, all in accordance with
GAAP. Each Borrower shall maintain at all times books and records  pertaining to
the  Collateral in such detail,  form and scope as the Agent or any Lender shall
reasonably require,  including,  but not limited to, records of (a) all payments
received and all credits and  extensions  granted with respect to the  Accounts;
(b) the return, rejections,  repossession, stoppage in transit, loss, damage, or
destruction  of  any  Inventory;  and  (c)  all  other  dealings  affecting  the
Collateral.

         7.2 Financial Information. Each of the Borrowers shall promptly furnish
to each Lender, all such financial  information as the Agent or any Lender shall
reasonably  request,  and notify its auditors and accountants that the Agent, on
behalf of the Lenders,  is authorized to obtain such  information  directly from
them.  Without limiting the foregoing,  the Borrowers will furnish to the Agent,
in  sufficient  copies for  distribution  by the Agent to each  Lender,  in such
detail as the Agent or the Lenders shall reasonably request, the following:

                      (a)     As soon as available, but in any event not later
than ninety (90) days after the close of each Fiscal Year, audited  consolidated
and unaudited  consolidating  balance sheets, and consolidated and consolidating
statements of income and expense,  cash flow and of stockholders' equity for the
Borrowers for such Fiscal Year,  and the  accompanying  notes  thereto,  setting
forth in each case in comparative form figures for the previous Fiscal Year, all
in reasonable  detail,  fairly presenting the financial position and the results
of  operations  of the  Borrowers as at the date thereof and for the Fiscal Year
then ended,  and prepared in  accordance  with GAAP.  Such  statements  shall be
examined in  accordance  with  generally  accepted  auditing  standards  by, and
accompanied  by a report thereon  unqualified as to scope of,  Deloitte & Touche
LLP or other independent  certified public accountants selected by the Borrowers
and reasonably  satisfactory to the Agent.  The Borrowers,  simultaneously  with
retaining  such  independent  public  accountants  to conduct such annual audit,
shall  send a  letter  to such  accountants,  with a copy to the  Agent  and the
Lenders,  notifying  such  accountants  that  one of the  primary  purposes  for
retaining such  accountants'  services and having audited  financial  statements
prepared by them is for use by the Agent and the Lenders.  The Borrowers  hereby
authorize  the  Agent  to  communicate  directly  with  their  certified  public
accountants and, by this provision,  authorize those  accountants to disclose to
the


<PAGE>



Agent any and all financial  statements and other supporting financial documents
and schedules  relating to the Borrowers and to discuss  directly with the Agent
the finances and affairs of the Borrowers.

                      (b)     As soon as available, but in any event not later
than thirty (30) days after the end of each fiscal month, unaudited consolidated
and  consolidating  balance sheets of the Borrowers as at the end of such month,
and unaudited  consolidated and  consolidating  statements of income and expense
and cash  flow for the  Borrowers  for such  month and for the  period  from the
beginning of the Fiscal Year to the end of such month, all in reasonable detail,
fairly  presenting  the  financial  position  and results of  operations  of the
Borrowers  as at the  date  thereof  and  for  such  periods,  and  prepared  in
accordance with GAAP applied  consistently with the audited Financial Statements
required to be delivered pursuant to Section 7.2(a).  Forstmann shall certify by
a certificate  signed by its chief  financial  officer that all such  statements
have been prepared in accordance with GAAP and present fairly, subject to normal
year-end adjustments,  the Borrowers' financial position as at the dates thereof
and its results of operations for the periods then ended.

                      (c)     As soon as available, but in any event not later
than  forty-five (45) days after the close of each fiscal quarter other than the
fourth  quarter  of a Fiscal  Year,  unaudited  consolidated  and  consolidating
balance  sheets of the  Borrowers as at the end of such  quarter,  and unaudited
consolidated and consolidating statements of income and expense and statement of
cash  flows for the  Borrowers  for such  quarter  and for the  period  from the
beginning  of the  Fiscal  Year to the end of such  quarter,  all in  reasonable
detail, fairly presenting the financial position and results of operation of the
Borrowers as at the date thereof and for such  periods,  prepared in  accordance
with GAAP  consistent  with the  audited  Financial  Statements  required  to be
delivered  pursuant to Section 7.2(a).  Forstmann shall certify by a certificate
signed  by its  chief  financial  officer  that all such  statements  have  been
prepared in accordance with GAAP and present fairly,  subject to normal year-end
adjustments,  the Borrower's  financial position as at the dates thereof and its
results of operations for the periods then ended.

                      (d)     With each of the audited Financial Statements
delivered pursuant to Section 7.2(a), a certificate of the independent certified
public  accountants  that examined  such  statement to the effect that they have
reviewed and are  familiar  with this  Agreement  and that,  in  examining  such
Financial  Statements,  they did not become aware of any fact or condition which
then  constituted  a Default or Event of  Default,  except  for  those,  if any,
described in reasonable detail in such certificate.

                      (e)     With each of the annual audited Financial
Statements delivered pursuant to Section 7.2(a), and within forty-five (45) days
after the end of each  fiscal  quarter,  a  certificate  of the chief  financial
officer of Forstmann  (i) setting forth in  reasonable  detail the  calculations
required to establish that the Borrowers  were in compliance  with the covenants
set forth in


<PAGE>



Sections  9.22  through  9.26  during  the  period  covered  in  such  Financial
Statements and as at the end thereof, and (ii) stating that, except as explained
in reasonable detail in such  certificate,  (A) all of the  representations  and
warranties  of the  Borrowers  contained  in this  Agreement  and the other Loan
Documents  are correct and complete in all  material  respects as at the date of
such  certificate as if made at such time, (B) the Borrowers are, at the date of
such  certificate,  in  compliance  in all material  respects  with all of their
respective  covenants  and  agreements  in this  Agreement  and the  other  Loan
Documents,  (C) no Default or Event of Default then exists or existed during the
period  covered by such  Financial  Statements,  (D) describing and analyzing in
reasonable detail all material trends, changes, and developments in each and all
Financial  Statements;  and (E)  explaining  the variances of the figures in the
corresponding  budgets  and prior  Fiscal  Year  financial  statements.  If such
certificate  discloses  that a  representation  or  warranty  is not  correct or
complete,  or that a covenant has not been  complied  with, or that a Default or
Event of Default existed or exists, such certificate shall set forth what action
the Borrowers have taken or propose to take with respect thereto.

                      (f)     No sooner than 60 days and not less than 30 days
prior to the beginning of each Fiscal Year of the  Borrowers,  annual  forecasts
(to include consolidated and consolidating forecasted balance sheets, statements
of income and expenses and  statements of cash flow) for the Borrowers as at the
end of and for each fiscal month of such Fiscal Year.

                      (g)     Promptly after filing with the PBGC and the IRS,
a copy of each annual  report or other  filing  filed with respect to each ERISA
Plan of any Borrower.

                      (h)     Promptly upon the filing thereof, copies of all
reports, if any, to or other documents filed by any Borrower with the Securities
and Exchange  Commission  under the Exchange Act, and all reports,  notices,  or
statements sent or received by any Borrower to or from the holders of any equity
interests of any Borrower (other than routine  non-material  correspondence sent
by  shareholders  of any Borrower to such  Borrower) or of any Debt for Borrowed
Money of any Borrower  registered under the Securities Act of 1933 or to or from
the trustee under any indenture under which the same is issued.

                      (i)     As soon as available, but in any event not later
than 15 days after any  Borrower's  receipt  thereof,  a copy of all  management
reports and management  letters  prepared for such Borrower by Deloitte & Touche
LLP or any other independent certified public accountants of such Borrower.

                      (j)     Promptly after filing with the IRS, a copy of each
tax return filed by any Borrower.

                      (k)     As promptly as practicable with respect to the
period  commencing on and at all times after the Closing Date,  all filings with
the Bankruptcy  Court by any Person,  all notices of hearings,  all reports with
respect to Claims (as defined in the


<PAGE>



Plan of Reorganization), all reports from the disbursing agent under the Plan of
Reorganization  and copies of all other  materials  relating  to any matter over
which the Bankruptcy Court has retained jurisdiction.

                      (l)     Such additional information as the Agent and/or
any Lender may from time to time reasonably  request regarding the financial and
business affairs of any Borrower, including, without limitation,  projections of
future  operations,  information  relating to the Plan of Reorganization and all
claims and proceedings in connection therewith,  and information relating to the
acquisition by FAI of substantially all of the assets of Arenzano and BBC.

         7.3 Notices to the Lenders.  Each Borrower  shall notify the Agent,  in
writing of the following matters at the following times:

                      (a)     Immediately after becoming aware of any Default or
Event of Default.

                      (b)     Immediately after becoming aware of the assertion
by the  holder  of any  capital  stock of such  Borrower  or of any Debt  that a
default  exists with respect  thereto or that such Borrower is not in compliance
with the terms  thereof,  or the threat or  commencement  by such  holder of any
enforcement action because of such asserted default or non-compliance.

                      (c)     Immediately after becoming aware of any material
adverse change in such Borrower's property,  business,  operations, or condition
(financial or otherwise).

                      (d)     Immediately after receipt of any written notice of
(i) any pending or threatened action, suit,  proceeding,  or counterclaim by any
Person  which  may  have a  Material  Adverse  Effect,  or (ii) any  pending  or
threatened  investigation  by a Governmental  Authority  (other than routine and
ordinary inspections).

                      (e)     Immediately after becoming aware of any pending or
threatened  strike,  work stoppage,  unfair labor practice claim, or other labor
dispute  affecting such Borrower in a manner which could  reasonably be expected
to have a Material Adverse Effect.

                      (f)     Immediately after becoming aware of any violation
of any law,  statute,  regulation,  or  ordinance  of a  Governmental  Authority
affecting  such Borrower  which could  reasonably be expected to have a Material
Adverse Effect.

                      (g)     Immediately after receipt of any written notice of
any violation by such Borrower of any  Environmental  Law which could reasonably
be expected to have a Material Adverse Affect or that any Governmental Authority
has asserted  that such  Borrower  thereof is not in  compliance in any material
respect  with  any  Environmental  Law  or  is  investigating   such  Borrower's
compliance therewith other than routine and ordinary inspections.

                      (h)     Immediately after receipt of any written notice
that such Borrower is or may be liable to any Person as a result of


<PAGE>



the Release or threatened  Release of any  Contaminant  or that such Borrower is
subject to investigation by any Governmental  Authority  evaluating  whether any
remedial action is needed to respond to the Release or threatened Release of any
Contaminant  which,  in  either  case,  is  reasonably  likely  to give  rise to
liability in excess of $5,000,000.

                      (i)     Immediately after receipt of any written notice of
the imposition of any Environmental Lien against any property of
such Borrower.

                      (j)     Any change in such Borrower's name, state of
incorporation,  or form of  organization,  trade names under which such Borrower
will sell Inventory or create  Accounts,  or to which  instruments in payment of
Accounts  may be made  payable,  in each case at least  thirty  (30) days  prior
thereto.

                      (k)     Within ten (10) Business Days after such Borrower
or any  ERISA  Affiliate  knows or  receives  notice,  that an ERISA  Event or a
prohibited  transaction  (as  defined in  Sections  406 of ERISA and 4975 of the
Code) has occurred,  and, when known, any action taken or threatened by the IRS,
the DOL or the PBGC with respect thereto.

                      (l)     Upon request, or, in the event that such filing
reflects a significant  change (as  reasonably  determined by the Borrower) with
respect to the matters  covered  thereby,  within ten (10) days after the filing
thereof  with  the  PBGC,  the DOL or the  IRS,  as  applicable,  copies  of the
following:  (i) each annual  report  (form 5500  series),  including  Schedule B
thereto,  filed  with the PBGC,  the DOL or the IRS with  respect  to each ERISA
Plan, (ii) a copy of each funding waiver request filed with the PBGC, the DOL or
the IRS with respect to any ERISA Plan and all  communications  received by such
Borrower or any ERISA  Affiliate  from the PBGC, the DOL or the IRS with respect
to such request,  and (iii) a copy of each other filing or notice filed with the
PBGC,  the DOL or the IRS,  with respect to each ERISA Plan of such  Borrower or
any ERISA Affiliate.

                      (m)     Upon request, copies of each actuarial report for
any ERISA Plan or Multi-employer  Plan and annual report for any  Multi-employer
Plan;  and within ten (10) days after  receipt  thereof by such  Borrower or any
ERISA  Affiliate,  copies  of the  following:  (i)  any  notices  of the  PBGC's
intention  to  terminate  an  ERISA  Plan  or to  have a  trustee  appointed  to
administer  such ERISA Plan;  (ii) any  favorable or  unfavorable  determination
letter from the IRS regarding the  qualification  of an ERISA Plan under Section
401(a) of the Code; or (iii) any notice from a Multi-employer Plan regarding the
imposition of withdrawal liability.

                      (n)     Within ten (10) days after (i) such Borrower has
knowledge  or should  have  knowledge  that any  changes in the  benefits of any
existing  ERISA Plan have increased  such  Borrower's  annual costs with respect
thereto,  (ii) the  establishment  of any new ERISA Plan or the  commencement of
contributions  to any ERISA Plan to which such  Borrower or any ERISA  Affiliate
was not  previously  contributing;  or (iii) any failure by such Borrower or any
ERISA


<PAGE>



Affiliate to make a required  installment  or any other  required  payment under
Section  412 of the Code on or  before  the due date  for  such  installment  or
payment.

                      (o)     Within ten (10) days after such Borrower or any
ERISA Affiliate knows or receives notice that any of the following events has or
will occur: (i) a Multi-employer  Plan has been or will be terminated;  (ii) the
administrator  or plan sponsor of a  Multi-employer  Plan intends to terminate a
Multi-employer  Plan;  or  (iii)  the  PBGC  has  instituted  or will  institute
proceedings under Section 4042 of ERISA to terminate a Multi-employer Plan.

         Each notice given under this Section shall  describe the subject matter
thereof in reasonable  detail,  and shall set forth the action that any Borrower
or any  ERISA  Affiliate,  as  applicable,  has taken or  proposes  to take with
respect thereto.


                                                     ARTICLE 8

                                      GENERAL WARRANTIES AND REPRESENTATIONS

         Each Borrower warrants and represents to the Agent and the Lenders that
except as  hereafter  disclosed  to and  accepted by the Agent and the  Majority
Lenders in writing:

         8.1 Authorization,  Validity,  and Enforceability of this Agreement and
the Loan  Documents.  Such  Borrower has the  corporate  power and  authority to
execute,  deliver and perform this  Agreement and the other Loan  Documents,  to
incur  the  Obligations,  and to  grant to the  Agent  Liens  upon and  security
interests in the  Collateral.  Such Borrower has taken all  necessary  corporate
action (including without limitation,  obtaining approval of its stockholders if
necessary)  to  authorize  its  execution,  delivery,  and  performance  of this
Agreement  and the other  Loan  Documents.  This  Agreement  and the other  Loan
Documents have been duly executed and delivered by such Borrower, and constitute
the legal, valid and binding  obligations of such Borrower,  enforceable against
it in  accordance  with  their  respective  terms.  Such  Borrower's  execution,
delivery,  and performance of this Agreement and the other Loan Documents do not
and will not  conflict  with,  or  constitute  a  violation  or  breach  of,  or
constitute a default under,  or result in the creation or imposition of any Lien
upon the  property of such  Borrower by reason of the terms of (a) any  material
contract,  mortgage,  Lien, lease, agreement,  indenture, or instrument to which
such Borrower is a party or which is binding upon them,  (b) any  Requirement of
Law  applicable  to  such  Borrower,  or (c)  the  certificate  or  articles  of
incorporation  or by-laws of such Borrower as each has been amended  pursuant to
the Plan of  Reorganization  or otherwise,  copies of which amendments have been
delivered to the Agent and the Lenders.

         8.2 Validity and Priority of Security Interest.  The provisions of this
Agreement, the Mortgage(s),  and the other Loan Documents create legal and valid
Liens on all the  Collateral in favor of the Agent,  for the ratable  benefit of
the Agent and the Lenders,  and, when financing  statements  have been filed and
the


<PAGE>



Mortgages recorded in the appropriate offices in the appropriate locations, such
Liens will  constitute  perfected and  continuing  Liens on all the  Collateral,
having priority over all other Liens on the Collateral,  except  Permitted Liens
described in clause (i) of the  definition  of  "Permitted  Liens" and Permitted
Liens if and to the extent  that such  Permitted  Liens  constitute  prior Liens
under any  Requirement of Law and, in the case of Real Estate,  Permitted  Liens
described in clause (vi) of the  definition of "Permitted  Liens",  securing all
the Obligations, and enforceable against such Borrower and all third parties.

         8.3  Organization  and   Qualification.   Such  Borrower  (a)  is  duly
incorporated  and organized and validly existing in good standing under the laws
of the state of its incorporation,  (b) is qualified to do business as a foreign
corporation and is in good standing in the  jurisdictions  set forth on Schedule
8.3 which are the only  jurisdictions  in which  qualification  is  necessary in
order for it to own or lease its property and conduct its business, except where
the  failure so to qualify and to be in good  standing  would not  constitute  a
Material Adverse Effect and (c) has all requisite power and authority to conduct
its business and to own its property.

         8.4 Corporate Name; Prior Transactions. Except as disclosed on Schedule
8.4,  such  Borrower has not,  during the past five (5) years,  been known by or
used any other  corporate or  fictitious  name, or been a party to any merger or
consolidation, or acquired all or substantially all of the assets of any Person,
or acquired any of its property outside of the ordinary course of business.

         8.5 Subsidiaries and Affiliates. Schedule 8.5 is a correct and complete
list  of  the  name  and  relationship  to  such  Borrower  of  such  Borrower's
Subsidiaries and other Affiliates.  Each of such Borrower's  Subsidiaries is (a)
duly  incorporated and organized and validly existing in good standing under the
laws of its state of incorporation  set forth on Schedule 8.5, and (b) qualified
to  do  business  as  a  foreign   corporation  and  in  good  standing  in  the
jurisdictions  set forth  opposite its name on Schedule 8.5,  which are the only
states in which such  qualification is necessary in order for it to own or lease
its property and conduct its business.

         8.6  Projections;  Balance  Sheet.  (a)  The  Latest  Projections  when
submitted  to the Lenders as  required  herein  represent  the  Borrowers'  best
estimate of the future  financial  performance  of the Borrowers for the periods
set forth therein. The Latest Projections have been prepared on the basis of the
assumptions  set  forth  therein,  which  the  Borrowers  believe  are  fair and
reasonable in light of current and reasonably foreseeable business conditions at
the time submitted to the Lenders.

                      (b) [Intentionally omitted.]

                      (c) The unaudited consolidated and consolidating
balance sheet of the Borrowers as of August 2, 1998, attached hereto as Schedule
8.6(c),  presents fairly and accurately the Borrowers' financial condition as at
such date assuming the


<PAGE>



transactions  contemplated  hereby and in the Acquisition Order and Bill of Sale
had  occurred on such date and the Closing  Date had been on such Date,  and has
been prepared in accordance with GAAP.


         8.7 Capitalization.  On the Closing Date and after giving effect to the
consummation  of the  transactions  contemplated  hereby and in the  Acquisition
Order and Bill of Sale,  (i)  Forstmann's  authorized  capital stock consists of
10,000,000  shares  of  common  stock,  par  value  $0.01  per  share,  of which
approximately  4,300,000  shares has been  distributed  to  holders of  "allowed
general unsecured claims" pursuant to the Plan of Reorganization; and (ii) FAI's
authorized capital stock consists of 100 shares of common stock, par value $0.01
per share, all of which approximately are owned by Forstmann.

         8.8 Solvency.  The Borrowers on a  consolidated  basis taken as a whole
are  Solvent  prior  to and  after  giving  effect  to the  assumption  of their
liability  under this Agreement and the making of any Revolving Loans to be made
on the Closing Date and the issuance of any Letter of Credit to be issued on the
Closing Date, and shall remain  Solvent on a consolidated  basis during the term
of this Agreement.

         8.9  Debt.  After  giving  effect  to the  Term  Loans,  in the case of
Forstmann, and the Revolving Loans to be made and to the issuance of the Letters
of Credit to be issued on the Closing Date, in the case of both Borrowers,  such
Borrower  has no  Debt,  except  (a)  the  Obligations,  (b)  Debt to be paid in
accordance with the Plan of  Reorganization  which is described on Schedule 8.9,
and (c) trade  payables,  administrative  expenses and  contractual  obligations
arising in the ordinary  course of business  after the date of the  Confirmation
Order.

         8.10  Distributions.  Since January 1, 1993, no  Distribution  has been
declared,  paid,  or made  upon or in  respect  of any  capital  stock  or other
securities of such Borrower.

         8.11 Title to Property.  Such Borrower has good and marketable title in
fee  simple  to its real  property  listed in  Schedule  8.12  hereto,  and such
Borrower  has good,  indefeasible,  and  merchantable  title to all of its other
property (including, without limitation, the assets reflected on the most recent
Financial Statements delivered to the Agent and the Lenders,  except as disposed
of in the ordinary course of business since the date thereof), free of all Liens
except Permitted Liens.

         8.12  Real  Estate;  Leases.  Schedule  8.12 sets  forth a correct  and
complete  list of all Real Estate owned by such Borrower as of the Closing Date,
all leases and subleases of real or personal property by such Borrower as lessee
or sublessee,  and all leases and subleases of real or personal property by such
Borrower as lessor or sublessor.  Except as disclosed on Schedule 8.12,  each of
such leases and subleases is valid and  enforceable in accordance with its terms
and is in full force and  effect,  and no default by any party to any such lease
or sublease exists.



<PAGE>



         8.13  Proprietary  Rights.  Schedule  8.13  sets  forth a  correct  and
complete  list  of  all of  such  Borrower's  Proprietary  Rights.  None  of the
Proprietary Rights is subject to any licensing  agreement or similar arrangement
except as set forth on Schedule 8.13. To the best of such Borrower's  knowledge,
none of the Proprietary Rights infringes on or conflicts with any other Person's
property,  and no other  Person's  property  infringes on or conflicts  with the
Proprietary Rights. The Proprietary Rights described on Schedule 8.13 constitute
all of the property of such type necessary to the current and anticipated future
conduct of such Borrower's business.

         8.14 Trade  Names and Terms of Sale.  All trade  names under which such
Borrower will sell  Inventory or create  Accounts,  or to which  instruments  in
payment of Accounts may be made payable, are listed on Schedule 8.14.

         8.15  Litigation.  Except as set forth on  Schedule  8.15,  there is no
pending or (to the best of such Borrower's knowledge) threatened,  action, suit,
proceeding,  or counterclaim by any Person, or investigation by any Governmental
Authority,  or any basis for any of the  foregoing,  which could  reasonably  be
expected to cause a Material Adverse Effect.

         8.16  Restrictive  Agreements.  Such  Borrower  is not a  party  to any
contract or agreement, or subject to any charter or other corporate restriction,
which affects its ability to execute,  deliver,  and perform the Loan  Documents
and repay the Obligations or which materially and adversely  affects or, insofar
as such  Borrower  can  reasonably  foresee,  could  reasonably  be  expected to
materially  and  adversely  affect,  the  property,  business,   operations,  or
condition  (financial or otherwise)  of such  Borrower,  or would in any respect
cause a Material Adverse Effect.

         8.17 Labor Disputes. Except as set forth on Schedule 8.17, (a) there is
no collective bargaining agreement or other labor contract covering employees of
such  Borrower,  (b) no such  collective  bargaining  agreement  or other  labor
contract is scheduled to expire during the term of this Agreement,  (c) no union
or other labor  organization  is seeking to organize,  or to be recognized as, a
collective  bargaining  unit of  employees  of such  Borrower or for any similar
purpose,  and  (d)  there  is no  pending  or (to the  best  of such  Borrower's
knowledge)  threatened,  strike,  work stoppage,  material unfair labor practice
claim, or other material labor dispute against or affecting such Borrower or its
employees.

         8.18         Environmental Laws.  Except as otherwise disclosed on
Schedule 8.18:

                      (a)     Such Borrower has complied in all material
respects with all  Environmental  Laws  applicable to its Premises and business,
and neither such Borrower nor any of its present Premises or operations, nor, to
the best of such  Borrower's  knowledge,  its past  property or  operations,  is
subject  to  any  enforcement  order  from  or  liability   agreement  with  any
Governmental  Authority or private Person  respecting  (i)  compliance  with any
Environmental Law


<PAGE>



or (ii) any potential  liabilities and costs or remedial action arising from the
Release or threatened Release of a Contaminant.

                      (b)     Such Borrower has obtained all material permits
necessary for its current  operations  under  Environmental  Laws,  and all such
permits are in good  standing and such Borrower is in compliance in all material
respects with all terms and conditions of such permits.

                      (c)     Neither such Borrower nor, to the best of such
Borrower's knowledge,  any of its predecessors in interest, has, in violation of
applicable  law,  stored,  treated or  disposed  of any  hazardous  waste on any
Premises, as defined pursuant to 40 CFR Part 261 or any equivalent Environmental
Law.

                      (d)     Such Borrower has not received any summons,
complaint,  order  or  similar  written  notice  that  it is  not  currently  in
compliance with, or that any Governmental Authority is investigating (other than
periodic and ordinary  inspections) its compliance with, any Environmental  Laws
or that it is or may be liable to any other  Person as a result of a Release  or
threatened Release of a Contaminant.

                      (e)     None of the present or, to the best of such
Borrower's  knowledge,  past  operations  of such Borrower is the subject of any
investigation  by any  Governmental  Authority  evaluating  whether any remedial
action is needed to respond to a Release or threatened Release of a Contaminant.

                      (f)     There is not now, nor to the best of such
Borrower's knowledge has there ever been on or in the Premises:

                            (i)        any underground storage tanks or surface
                                       impoundments,

                           (ii)        any asbestos-containing material, or

                          (iii)        any  polychlorinated   biphenyls  (PCB's)
                                       used  in   hydraulic   oils,   electrical
                                       transformers or other equipment.

                      (g)     Such Borrower has not filed any notice under any
requirement  of  Environmental  Law  reporting  a  material  spill  or  material
accidental  and  unpermitted  release or  discharge  of a  Contaminant  into the
environment.

                      (h)     Such Borrower has not entered into any
negotiations  or  settlement  agreements  with any  Person  (including,  without
limitation,  the prior owner of its property)  imposing material  obligations or
liabilities on such Borrower with respect to any remedial  action in response to
the Release of a Contaminant or environmentally related claim.

                      (i)     None of the products manufactured, distributed or
sold by such Borrower contains asbestos containing material.



<PAGE>



                      (j)     No Environmental Lien has attached to any Premises
of such Borrower.

         8.19 No Violation of Law. Such Borrower is not in violation of any law,
statute,  regulation,  ordinance,  judgment,  order, or decree  applicable to it
which violation could reasonably be expected to have a Material Adverse Effect.

         8.20 No Default.  Such  Borrower is not in default  with respect to any
note, indenture,  loan agreement,  mortgage,  lease, deed, or other agreement to
which such  Borrower  is a party or by which it is bound,  which  default  could
reasonably be expected to have a Material Adverse Effect.

         8.21         ERISA Compliance.  Except as specifically disclosed in
Schedule 8.21:

                      (a)     Each ERISA Plan is in compliance in all material
respects with the applicable  provisions of ERISA, the Code and other federal or
state law. Each ERISA Plan which is intended to qualify under Section  401(a) of
the Code has received a favorable  determination  letter from the IRS and to the
best knowledge of such Borrower, nothing has occurred which would cause the loss
of such  qualification.  Such Borrower and each ERISA Affiliate of such Borrower
has made all required  contributions to any ERISA Plan subject to Section 412 of
the Code,  and no  application  for a  funding  waiver  or an  extension  of any
amortization  period  pursuant  to  Section  412 of the Code has been  made with
respect to any ERISA Plan.

                      (b)     There are no pending or, to the best knowledge of
such  Borrower,  threatened  claims,  actions  or  lawsuits,  or  action  by any
Governmental  Authority,  with  respect to any ERISA Plan which has  resulted or
could reasonably be expected to result in a Material  Adverse Effect.  There has
been no  prohibited  transaction  or violation of the  fiduciary  responsibility
rules with respect to any ERISA Plan which has resulted or could  reasonably  be
expected to result in a Material Adverse Effect.

                      (c)     (i) No ERISA Event has occurred or is reasonably
expected to occur;  (ii) no Pension  Plan has any  Unfunded  Pension  Liability;
(iii)  neither  such  Borrower  nor any ERISA  Affiliate  of such  Borrower  has
incurred,  or reasonably expects to incur, any material liability under Title IV
of ERISA with  respect to any  Pension  Plan (other  than  premiums  due and not
delinquent  under  Section 4007 of ERISA);  (iv)  neither such  Borrower nor any
ERISA Affiliate of such Borrower has incurred,  or reasonably  expects to incur,
any liability (and no event has occurred which,  with the giving of notice under
Section 4219 of ERISA,  would result in such  liability)  under  Section 4201 or
4243 of ERISA  with  respect  to a  Multi-employer  Plan;  and (v)  neither  the
Borrower  nor any ERISA  Affiliate  has engaged in a  transaction  that could be
subject to Section 4069 or 4212(c) of ERISA.

         8.22 Taxes.  Except as disclosed in Schedule  8.22,  such  Borrower has
filed all Federal and other tax  returns and reports  required to be filed,  and
has paid all taxes shown to be due and


<PAGE>



payable on such  returns and  reports and has paid all Federal and other  taxes,
assessments,  fees and other  governmental  charges levied or imposed upon it or
its properties,  income or assets  otherwise due and payable other than any such
taxes,  assessments,  fees  and  other  charges,  the  non-payment  of  which is
permitted by Section 9.1.

         8.23  Regulated  Entities.   None  of  such  Borrower  nor  any  Person
controlling  such Borrower is an "Investment  Company" within the meaning of the
Investment Company Act of 1940. Such Borrower is not subject to regulation under
the Public  Utility  Holding  Company Act of 1935,  the Federal  Power Act,  the
Interstate  Commerce Act, any state public  utilities code, or any other Federal
or state statute or regulation limiting its ability to incur indebtedness.

         8.24 Use of Proceeds; Margin Regulations. The proceeds of the Loans and
other  extensions of credit  hereunder will be used by such Borrower to fund the
Plan of  Reorganization,  to pay the  fees  and  expenses  of such  Borrower  in
connection with this Agreement and the transactions contemplated hereby, for the
acquisition by FAI of  substantially  all of the assets of Arenzano and BBC, and
for general working capital and corporate purposes. Such Borrower is not engaged
in the business of  purchasing or selling  Margin Stock or extending  credit for
the purpose of purchasing or carrying Margin Stock.

         8.25 Copyrights,  Patents,  Trademarks and Licenses, etc. Such Borrower
owns or is  licensed  or  otherwise  has the  right  to use all of the  patents,
trademarks,  service marks,  trade names,  copyrights,  contractual  franchises,
authorizations and other rights that are reasonably  necessary for the operation
of its businesses,  without conflict with the rights of any other Person. To the
best knowledge of such Borrower, no slogan or other advertising device, product,
process,  method,  substance,  part  or  other  material  now  employed,  or now
contemplated to be employed,  by such Borrower infringes upon any rights held by
any other  Person.  No claim or  litigation  regarding  any of the  foregoing is
pending or  threatened,  and,  to the  knowledge  of such  Borrower,  no patent,
invention, device, application, principle or any statute, law, rule, regulation,
standard or code is pending or proposed, which, in either case, could reasonably
be expected to have a Material Adverse Effect.

         8.26 No  Material  Adverse  Change.  No  Material  Adverse  Effect  has
occurred  since the date of the  Financial  Statements  referred  to in  Section
8.6(c) of this Agreement.  On the basis of a comprehensive review and assessment
undertaken by such Borrower of Borrower's computer applications and inquiry made
of such  Borrower's  material  suppliers,  vendors and  customers  such Borrower
reasonably  believes  that the  "Year  2000  problem"  (that  is,  the risk that
computer  applications used by any person may be unable to recognize and perform
properly date sensitive  functions involving certain dates prior to and any date
after December 31, 1999) will not result in a Material Adverse Effect.

         8.27         Full Disclosure.  None of the representations or
warranties made by such Borrower in the Loan Documents as of the


<PAGE>



date such  representations  and  warranties are made or deemed made, and none of
the  statements  contained in any  exhibit,  report,  statement  or  certificate
furnished by or on behalf of such Borrower in connection with the Loan Documents
(including  the offering and disclosure  materials  delivered by or on behalf of
such  Borrower to the Lenders  prior to the Closing  Date),  contains any untrue
statement of a material  fact or omits any material  fact  required to be stated
therein  or  necessary  to make the  statements  made  therein,  in light of the
circumstances under which they are made, not misleading as of the time when made
or delivered.

         8.28 Material Agreements.  Schedule 8.28 hereto sets forth all material
agreements and contracts to which such Borrower is a party or is bound as of the
date hereof.

         8.29 Bank Accounts. Schedule 8.29 contains a complete and accurate list
of all  bank  accounts  maintained  by such  Borrower  with  any  bank or  other
financial institution.

         8.30  Governmental  Authorization.  No  approval,  consent,  exemption,
authorization,   or  other  action  by,  or  notice  to,  or  filing  with,  any
Governmental  Authority or other  person is necessary or required in  connection
with the execution,  delivery or performance  by, or enforcement  against,  such
Borrower of this Agreement, any other Loan Document, or the Bill of Sale, except
for filings necessary to perfect the Agent's Lien on the Collateral.

         8.31  Acquisition.  The  Acquisition  Order has  become a Final  Order,
remains in full force and effect, and has not been revoked, vacated or otherwise
modified or amended.

                                                     ARTICLE 9

                                        AFFIRMATIVE AND NEGATIVE COVENANTS

         Each  Borrower  covenants to the Agent and each Lender that, so long as
any of the Obligations remain outstanding or this Agreement is in effect:

         9.1 Taxes and Other Obligations.  Such Borrower shall (a) file when due
all tax returns  and other  reports  which it is  required to file;  (b) pay, or
provide for the payment,  when due, of all taxes,  fees,  assessments  and other
governmental  charges  against it or upon its property,  income and  franchises,
make all required withholding and other tax deposits, other than any inadvertent
nonpayment of an immaterial  amount,  and  establish  adequate  reserves for the
payment  of all such  items,  and  provide  to the Agent and the  Lenders,  upon
request,  satisfactory evidence of its timely compliance with the foregoing; and
(c) pay when due all Debt owed by it and all claims of  materialmen,  mechanics,
carriers,  warehousemen,  landlords  and  other  like  Persons,  and  all  other
indebtedness  (including  without  limitation all trade payables) owed by it and
perform and discharge in a timely manner all other obligations undertaken by it,
other  than  any  inadvertent  nonpayment  of an  immaterial  amount;  provided,
however, that such Borrower need not pay any tax, fee, assessment,  governmental
charge,  Debt,  claim or other  indebtedness  that (i) it is  contesting in good
faith by


<PAGE>



appropriate  proceedings  diligently  pursued  and (ii) that such  Borrower  has
established proper reserves for as provided in GAAP; provided further,  however,
that the Agent shall be entitled to establish  reserves  from  Availability  for
such  Borrower  for  any  and all  Liens  in an  amount  greater  than  $100,000
(individually or in the aggregate) for taxes,  fees,  assessments,  governmental
charges, Debts, claims or other indebtedness resulting from such non-payment.

         9.2 Corporate Existence and Good Standing. Such Borrower shall maintain
its  corporate  existence  and  its  qualification  and  good  standing  in  all
jurisdictions in which the failure to maintain such existence and  qualification
or good standing could  reasonably be expected to have a material adverse effect
on such  Borrower's  property,  business,  operations,  prospects,  or condition
(financial or otherwise).

         9.3 Compliance with Law and Agreements;  Maintenance of Licenses.  Such
Borrower shall comply in all material  respects with all  Requirements of Law of
any  Governmental   Authority  having  jurisdiction  over  it  or  its  business
(including the Federal Fair Labor Standards Act). Such Borrower shall obtain and
maintain all licenses,  permits,  franchises,  and  governmental  authorizations
necessary  to own its  property  and to conduct its business as conducted on the
Closing Date, except to the extent that failure to do any of the foregoing would
not constitute a Material Adverse Effect. Such Borrower shall not modify,  amend
or alter its  certificate  or  article of  incorporation  other than in a manner
which does not adversely affect the rights of the Lenders or the Agent.

         9.4  Maintenance  of Property.  Such Borrower shall maintain all of its
property necessary and useful in the conduct of its business,  in good operating
condition  and repair,  ordinary  wear and tear  excepted,  and in the  ordinary
course of its business.

         9.5 Insurance. (a) Such Borrower shall maintain, with financially sound
and  reputable  insurers  having a rating  of at least  A-VII or  better by Best
Rating  Guide,  insurance  against such hazards or of such types as is customary
for  Persons  engaged in the same or similar  business,  in  amounts,  and under
policies  reasonably  acceptable to the Agent and the Majority Lenders.  Without
limiting the foregoing,  such Borrower shall also maintain flood  insurance,  in
the event of a designation  of the area in which any Real Estate  covered by the
Mortgages and any of the Equipment and Inventory  located on such Real Estate is
located as "flood prone" or a "flood risk area," (hereinafter "SFHA") as defined
by the Flood  Disaster  Protection  Act of 1973,  in an amount to be  reasonably
determined by the Agent,  and shall comply with the additional  requirements  of
the National  Flood  Insurance  Program as set forth in said Act.  Such Borrower
shall also maintain flood insurance for any material amount of its Inventory and
Equipment which is, at any time, located in a SFHA.

                      (b)     Such Borrower shall cause the Agent, for the
ratable benefit of the Agent and the Lenders, to be named in each
such policy as secured party or mortgagee and loss payee or


<PAGE>



additional insured, in a manner reasonably  acceptable to the Agent. Each policy
of insurance shall contain a clause or endorsement requiring the insurer to give
not less than thirty (30) days' prior  written  notice to the Agent in the event
of  cancellation  of the  policy  for any  reason  whatsoever  and a  clause  or
endorsement  stating  that the  interest  of the Agent  shall not be impaired or
invalidated  by any act or neglect of such Borrower or the owner of any premises
for purposes more hazardous than are permitted by such policy.  All premiums for
such  insurance  shall be paid by such  Borrower when due, and  certificates  of
insurance  and,  if  requested  by the Agent or any Lender,  photocopies  of the
policies,  shall be delivered to the Agent, in each case in sufficient  quantity
for distribution by the Agent to each of the Lenders.  If such Borrower fails to
procure such insurance or to pay the premiums  therefor when due, the Agent may,
and at the direction of the Majority  Lenders shall,  do so from the proceeds of
Revolving Loans.

                      (c)     Such Borrower shall promptly notify the Agent and
the Lenders of any loss,  damage, or destruction to the Collateral  arising from
its use, whether or not covered by insurance.  The Agent is hereby authorized to
collect all insurance proceeds directly, and to apply or remit them as follows:

                            (i)     With respect to insurance proceeds relating
to property  other than  Collateral,  after  deducting  from such  proceeds  the
reasonable expenses, if any, incurred by the Agent in the collection or handling
thereof, the Agent shall promptly remit to such Borrower such proceeds.

                           (ii)    With respect to insurance proceeds relating
to Collateral  other than Fixed Assets,  after  deducting from such proceeds the
reasonable expenses, if any, incurred by the Agent in the collection or handling
thereof,  the Agent shall apply such proceeds,  ratably, to the reduction of the
Obligations in the order provided for in Section 4.8.

                          (iii)     With respect to insurance proceeds relating
to Collateral consisting of Fixed Assets, after deducting from such proceeds the
reasonable expenses, if any, incurred by the Agent in the collection or handling
thereof,  (i) such Borrower may, so long as no Event of Default has occurred and
is  continuing,  use such  proceeds,  or any part thereof,  to replace,  repair,
restore or rebuild any relevant  Equipment having an orderly  liquidation  value
immediately prior to the loss, damage or destruction  thereof of no greater than
$500,000 in the  aggregate for all Borrowers in any Fiscal Year or $2,500,000 in
the aggregate for all  Borrowers  during the term of this  Agreement and (ii) in
all other  cases,  the Agent (A) shall  apply  such  proceeds,  ratably,  to the
reduction of the Term Loans (applying such proceeds  ratably to the installments
of the Term Loans in the inverse  order of maturity) or (B) at the option of the
Majority Lenders,  may permit or require such Borrower to use such money, or any
part thereof, to replace,  repair,  restore or rebuild the relevant Fixed Assets
in  a  diligent  and  expeditious  manner  with  materials  and  workmanship  of
substantially   the  same  quality  as  existed  before  the  loss,   damage  or
destruction.



<PAGE>



         9.6  Condemnation.  (a) Such Borrower shall,  promptly after receipt of
written notice of the  institution of any  proceeding  for the  condemnation  or
other  taking of any of its  property,  notify the Agent of the pendency of such
proceeding,  and agrees that the Agent may  participate in any such  proceeding,
and such  Borrower  from time to time will deliver to the Agent all  instruments
reasonably requested by the Agent to permit such participation.

                      (b)     The Agent is hereby authorized to collect the
proceeds of any condemnation claim or award directly, and to apply
or remit them as follows:

                            (i)        With respect to condemnation proceeds
relating to property other than  Collateral,  after deducting from such proceeds
the  reasonable  expenses,  if any,  incurred by the Agent in the  collection or
handling thereof, the Agent shall remit to such Borrower such proceeds.

                           (ii)        With respect to condemnation proceeds
relating  to  Collateral  other than Fixed  Assets,  after  deducting  from such
proceeds  the  reasonable  expenses,  if  any,  incurred  by  the  Agent  in the
collection or handling thereof, the Agent shall apply such proceeds, ratably, to
the reduction of the Obligations in the order provided for in Section 4.8.

                          (iii)        With respect to condemnation proceeds
relating to Collateral  consisting of Fixed Assets,  after  deducting  from such
proceeds  the  reasonable  expenses,  if  any,  incurred  by  the  Agent  in the
collection or handling thereof, the Agent shall apply such proceeds, ratably, to
the  reduction  of  the  Term  Loans  (applying  such  proceeds  ratably  to the
installments  of the Term Loans in the  inverse  order of  maturity),  or at the
option of the Majority Lenders,  may permit or require such Borrower to use such
money, or any part thereof, to replace,  repair, restore or rebuild the relevant
Fixed Assets in a diligent and expeditious manner with materials and workmanship
of substantially the same quality as existed before the condemnation.

         9.7 Environmental Laws. (a) Such Borrower shall conduct its business in
compliance in all material  respects with all  Environmental  Laws applicable to
it, including, without limitation,  those relating to the generation,  handling,
use, storage,  and disposal of any Contaminant.  Such Borrower shall take prompt
and  appropriate  action  to  respond  to  any  material   non-compliance   with
Environmental Laws and shall regularly report to the Agent on such response.

                      (b)     Without limiting the generality of the foregoing,
such Borrower shall submit to the Agent and the Lenders annually,  commencing on
the first Anniversary  Date, and on each Anniversary Date thereafter,  an update
of the status of each  environmental  compliance or liability issue that must be
reported  pursuant  to the last  sentence  of Section  9.7(a).  The Agent or any
Lender may request copies of technical reports prepared by such Borrower and its
communications  with  any  Governmental  Authority  to  determine  whether  such
Borrower is proceeding  reasonably to correct, cure or contest in good faith any
alleged non-compliance or environmental


<PAGE>



liability.  Such Borrower shall, at the Agent's or the Majority Lenders' request
and at such Borrower's expense, (a) retain an independent environmental engineer
acceptable to the Agent to evaluate such Borrower's compliance or non-compliance
in all  material  respects  with  all  Environmental  Laws,  including  tests if
appropriate,   where  the   non-compliance   or  alleged   non-compliance   with
Environmental  Laws has  occurred  and  prepare  and  deliver to the  Agent,  in
sufficient  quantity  for  distribution  by the Agent to the  Lenders,  a report
setting forth the results of such evaluation,  a proposed plan for responding to
any  environmental  problems  described  therein,  and an  estimate of the costs
thereof,  and (b) provide to the Agent and the Lenders a supplemental  report of
such engineer whenever the scope of the environmental  problems, or the response
thereto or the estimated costs thereof, shall change in any material respect.

         9.8 Compliance with ERISA. Such Borrower shall, and shall cause each of
its ERISA  Affiliates  to: (a)  maintain  each ERISA Plan in  compliance  in all
material  respects with the applicable  provisions of ERISA,  the Code and other
federal or state law;  (b) cause  each ERISA Plan which is  intended  to satisfy
Section 401(a) (or, if applicable, Section 401(k)) of the Code to satisfy and to
continue to satisfy such  requirements;  (c) make all required  contributions to
any  ERISA  Plan  subject  to  Section  412 of the  Code;  (d) not  engage  in a
prohibited  transaction or violation of the fiduciary  responsibility rules with
respect to any ERISA Plan that could  reasonably  be expected to have a Material
Adverse  Effect;  and (e) not engage in a  transaction  that could be subject to
Section 4069 or 4212(c) of ERISA.

         9.9 Mergers,  Consolidations  or Sales.  Except in accordance  with the
Plan of  Reorganization,  such Borrower shall not enter into any  transaction of
merger, reorganization,  or consolidation,  or transfer, sell, assign, lease, or
otherwise  dispose of all or any part of its property,  or wind up, liquidate or
dissolve, or agree to do any of the foregoing, except for (i) sales of Inventory
in the ordinary  course of its  business,  (ii) sales or other  dispositions  of
Equipment  in the  ordinary  course of business  that are  obsolete or no longer
useable  such  Borrower in its  business as  permitted by Section 6.11 and (iii)
sales of  Accounts,  which are not  Eligible  Accounts as a result of being past
due, to CIT pursuant to the CIT Agreements.

         9.10  Distributions;   Capital  Change;  Restricted  Investments.  Such
Borrower  shall not (i)  directly or  indirectly  declare or make,  or incur any
liability  to make,  any  Distribution,  (ii)  make any  change  in its  capital
structure  which  could  have a  Material  Adverse  Effect  or  (iii)  make  any
Restricted Investment.

         9.11 Transactions  Affecting  Collateral or Obligations.  Such Borrower
shall not enter into any transaction which would be reasonably  expected to have
a Material Adverse Effect.

         9.12 Guaranties.  The Borrowers shall not make, issue, or become liable
on any Guaranty, except (i) Guaranties of the Obligations in favor of the Agent,
(ii) Guaranties by FAI in connection with or relating to sales of Inventory on a
guaranteed


<PAGE>



sale, sale and return,  sale on approval,  consignment,  or other  repurchase or
return  basis,  provided  that  (A) it is for  promotional  purposes  and in the
ordinary course of its business, and (B) the value of such Inventory is included
in the Promotional  Reserve for FAI, (iii) Guaranties by FAI made to Solo Credit
International  Corp.  in that certain  Guarantee  dated May 28,  1998,  and (iv)
Guaranties  of the  obligations  of any other  Person  aggregating  no more than
$1,000,000 in the aggregate for all Borrowers,  for all such Persons at any time
outstanding.

         9.13  Debt.  Such  Borrower  shall not incur or  maintain  any Debt for
Borrowed  Money,  other than: (a) the  Obligations;  (b) other Debt for Borrowed
Money  existing on the Closing Date and  reflected on Schedule 8.9; (c) purchase
money Debt for  Borrowed  Money  incurred by such  Borrower  to finance  Capital
Expenditures,  MIS  Expenditures  and the  acquisition of Property under Capital
Leases  subsequent  to the  date of  this  Agreement,  to the  extent  that  (i)
immediately  after giving effect to the  incurrence  of any such purchase  money
Debt for Borrowed Money or liability under a Capital Lease, the aggregate amount
allocable to principal  under all Capital Leases for which liability is incurred
during any Fiscal Year, together with the aggregate principal amount of purchase
money Debt for Borrowed Money incurred  during such Fiscal Year, will not exceed
$1,000,000  and (ii) at the time that any such  liability in respect of purchase
money Debt for Borrowed Money or Capital Leases is to be incurred, no Default or
Event of Default shall have occurred and be continuing or will result therefrom,
(d) extensions,  renewals, replacements or refinancings of the Debt for Borrowed
Money described in the preceding clause (c) on terms and conditions satisfactory
to the Majority Lenders, and (e) Debt of a Borrower owing to any other Borrower.

         9.14  Prepayment.  (a) The  Borrowers  shall prepay  $1,500,000 of Term
Loans on the first date following the Closing Date on which any Interest  Period
ends, and the Agent is authorized to charge the Borrowers' Loan Accounts the sum
of  $1,500,000  as a  Revolving  Loan on such  date and apply  such  amount as a
prepayment  to the Term Loan with such  prepayment to be applied as set forth in
Section 4.5(b).

         (b) No Borrower shall  voluntarily  prepay any Debt for Borrowed Money,
except the Obligations in accordance with the terms of this Agreement.

         9.15  Transactions  with  Affiliates.  Except as set forth below,  such
Borrower shall not, and shall not permit any of its  Subsidiaries  to, (a) sell,
transfer,  distribute, or pay any money or property,  including, but not limited
to, any fees or expenses of any nature (including,  but not limited to, any fees
or expenses for management  services),  except (i) actual expenses  incurred and
approved in advance in writing by the Agent, and (ii) management fees payable by
FAI to Forstmann,  to any Affiliate, or (b) lend or advance money or property to
any Affiliate (except as permitted in Section 9.13(e)), or invest in (by capital
contribution or otherwise) or purchase or repurchase any stock or  indebtedness,
or any  property,  of any  Affiliate,  or become  liable on any  Guaranty of the
indebtedness,  dividends,  or other  obligations of any Affiliate  except in the
ordinary course of business and in accordance with


<PAGE>



past practice so long as not otherwise prohibited hereunder. Notwithstanding the
foregoing or anything to the contrary in any other Loan Document, if no Event of
Default has occurred and is continuing  or would  result,  such Borrower and its
Subsidiaries  may engage in  transactions of the type referred to in clauses (a)
and (b) of this Section 9.15 in the ordinary course of business,  in amounts and
upon terms fully disclosed to the Agent,  and no less favorable to such Borrower
or  such  Subsidiary  than  would  be  obtained  in  a  comparable  arm's-length
transaction  with a  third  party  who is not an  Affiliate;  provided,  that no
intercompany  debt so permitted shall be evidenced by a note or other instrument
(other than the  promissory  notes listed on Schedule  9.15) unless such note or
instrument (in form and substance  satisfactory to the Agent) is  simultaneously
delivered to the Agent (together with instruments of transfer,  opinions and all
other documents  which may be requested by the Agent,  all in form and substance
satisfactory  in all respects to the Agent) upon creation  thereof and the Agent
shall at all times be  satisfied in its pledge of and first  priority  perfected
security interest therein; provided further, that no such debt evidenced by such
note or instrument (other than the promissory notes listed on Schedule 9.15) may
be paid without the prior written consent of the Agent;  provided further,  that
the  amount  of Debt  owing by FAI to  Forstmann  shall  not at any time  exceed
$7,000,000.

         9.16 Investment  Banking and Finder's Fees. Such Borrower shall not pay
or agree to pay, or reimburse  any other party with  respect to, any  investment
banking or similar or related fee,  underwriter's fee, finder's fee, or broker's
fee to any Person in connection with this Agreement.  Such Borrower shall defend
and indemnify the Agent and the Lenders  against and hold them harmless from all
claims of any Person that such  Borrower is  obligated to pay for any such fees,
and all costs and  expenses  (including  without  limitation,  attorneys'  fees)
incurred by the Agent and/or any Lender in connection therewith.

         9.17 Business  Conducted.  Such Borrower  shall not engage  directly or
indirectly,  in any line of  business  other than the  businesses  in which such
Borrower  is engaged  on the date  hereof;  provided  that the  introduction  of
additional  products or services  within or related to such lines of business or
the  expansion  of  marketing  areas shall not be  construed to be a new line of
business.

         9.18 Liens. Such Borrower shall not create, incur, assume, or permit to
exist any Lien on any  property now owned or  hereafter  acquired by it,  except
Permitted Liens.

         9.19 Sale and Leaseback Transactions. Such Borrower shall not, directly
or indirectly,  enter into any  arrangement  with any Person  providing for such
Borrower to lease or rent  property  that such Borrower has sold or will sell or
otherwise  transfer to such Person;  provided,  however,  that such  prohibition
shall  not  apply to new  Equipment  sold and  leased  back  within  one year of
acquisition in connection with a Capital Lease,  subject to the limitations with
respect thereto contained in Section 9.13(c).



<PAGE>



         9.20 Subsidiaries. With the exception of the creation and establishment
by Forstmann of FAI no Borrower shall, directly or indirectly, organize, create,
acquire or permit to exist any Subsidiary.

         9.21         Fiscal Year.  Such Borrower shall not change its Fiscal
Year.

         9.22         Capital Expenditures; MIS Expenditures.

                      (a)     Such Borrower shall not make or incur any Capital
Expenditure if, after giving effect thereto, the aggregate amount of all Capital
Expenditures  by the  Borrowers  would in the  aggregate  exceed (i)  $5,000,000
during the Fiscal Year ending on November 2, 1998,  (ii)  $6,500,000  during the
Fiscal Year ending on November 2, 1999 or (iii) $5,000,000 during any subsequent
Fiscal Year; provided,  however,  that in the event that all or any part of such
permitted  aggregate  amount is not utilized by the Borrowers  during any Fiscal
Year,  such  unutilized  amount  may be added to the  limit  in  respect  of any
subsequent year or years; provided further, that in no event shall the aggregate
amount of all Capital  Expenditures by the Borrowers exceed  $11,000,000  during
the two-year period ending on November 2, 1999.

                      (b)     Such Borrower shall not make or incur any MIS
Expenditure,  if after giving effect  thereto,  the aggregate  amount of all MIS
Expenditures  by the  Borrowers  would in the  aggregate  exceed (i)  $1,500,000
during the Fiscal Year ending on November 2, 1998,  (ii)  $1,500,000  during the
Fiscal Year ending on November 2, 1999 or (iii) $500,000 during any other Fiscal
Year.

         9.23 Operating Lease  Obligations.  The Borrowers shall not enter into,
or  suffer  to  exist,  any  lease of real or  personal  property  as  lessee or
sublessee  (other than a Capital Lease),  if, after giving effect  thereto,  the
aggregate amount of Rentals (as hereinafter defined) payable by the Borrowers in
any Fiscal Year in respect of such lease and all other such leases  would in the
aggregate exceed  $4,000,000 (such amount being referred to herein as "Permitted
Rentals") on a consolidated  basis.  The term  "Rentals"  means all payments due
from the lessee or sublessee under a lease, including, without limitation, basic
rent,  percentage  rent,  property  taxes,  utility or  maintenance  costs,  and
insurance premiums.

         9.24 Adjusted  Tangible Net Worth. The Borrowers will maintain Adjusted
Tangible  Net Worth  for all  Borrowers,  determined  as of the last day of each
fiscal quarter, of not less than the following amounts, on a consolidated basis,
during the following periods of time:



<PAGE>




Fiscal Quarter Ending                            Amount
---------------------                            ------
July 1998                                  EDATNW minus
                                             $1,300,000
October 1998                               EDATNW minus
                                             $3,900,000
January 1999                               EDATNW minus
                                             $7,300,000
April 1999                                 EDATNW minus
                                             $3,000,000
July 1999                                  EDATNW minus
                                             $2,100,000
October 1999                               EDATNW minus
                                             $2,000,000
January 2000                               EDATNW minus
                                             $6,400,000
April 2000                                 EDATNW minus
                                             $2,275,000

         9.25 Interest  Coverage  Ratio.  The Borrower will maintain an Interest
Coverage Ratio, on a consolidated basis for all Borrowers,  determined as of the
last day of each fiscal quarter on a rolling  12-month  basis,  of not less than
the following ratios during the following periods of time:


Fiscal Quarter Ending                         Ratio
---------------------                         -----
July 1998                                        1.99
October 1998                                     1.40
January 1999                                     1.55
April 1999                                       1.60
July 1999                                        2.20
October 1999 (and any fiscal                     2.50
quarter thereafter)

         9.26 Fixed Charge Coverage  Ratio.  The Borrowers will maintain a Fixed
Charge Coverage Ratio, on a consolidated basis for all Borrowers,  determined as
of the last day of each fiscal quarter on a rolling  12-month basis, of not less
than the following ratios during the following periods of time:



Fiscal Quarter Ending                        Ratio
---------------------                        -----
July 1998                                       0.60
October 1998                                    0.20
January 1999                                    0.15
April 1999                                      0.25
July 1999                                       0.50
October 1999                                    0.65
January 2000 (and any fiscal       
quarter thereafter)                             1.1
                                
         9.27 Use of Proceeds.  Such  Borrower  shall not use any portion of the
Loan proceeds,  directly or  indirectly,  (i) to purchase or carry Margin Stock,
(ii) to repay or otherwise  refinance  indebtedness  of such  Borrower or others
incurred to  purchase  or carry  Margin  Stock,  (iii) to extend  credit for the
purpose of purchasing or carrying any Margin Stock, or (iv) to


<PAGE>



acquire any security in any  transaction  that is subject to Section 13 or 14 of
the Exchange Act.

         9.28 Plan of  Reorganization.  Without the prior written consent of the
Agent and the Majority Lenders, such Borrower shall not cause or permit the Plan
of  Reorganization  to be amended  or  modified  or waive any of the  conditions
contained therein in any material respect.

         9.29 Further  Assurances.  Such Borrower shall execute and deliver,  or
cause to be  executed  and  delivered,  to the Agent  and/or  the  Lenders  such
documents and agreements,  and shall take or cause to be taken such actions,  as
the Agent or any Lender may, from time to time,  reasonably request to carry out
the terms and conditions of this Agreement and the other Loan Documents.

         9.30  Minimum  EBITDA.  FAI shall not permit its EBITDA to be less than
(i) $0 for the period from November 2, 1998 through May 2, 1999; (ii) $1,000,000
for the Fiscal Year ending on October 31, 1999; and (iii) $0 for the period from
November 1, 1999 through April 30, 2000.


                                                    ARTICLE 10

                                               CONDITIONS OF LENDING

         10.1  Conditions   Precedent  to   Effectiveness   of  Agreement.   The
effectiveness of this Agreement is subject to the following conditions precedent
having been satisfied in a manner reasonably  satisfactory to the Agent and each
Lender:

                      (a)     This Agreement and the other Loan Documents have
been executed by each party thereto and each Borrower  shall have  performed and
complied with all covenants,  agreements and conditions contained herein and the
other Loan Documents which are required to be performed or complied with by such
Borrower before or on the Closing Date.

                      (b)     [Intentionally omitted.]

                      (c)     All representations and warranties made hereunder
and in the other Loan Documents shall be true and correct as of the Closing Date
as if made on such date.

                      (d)     With the exception of any default described in
Section  15.21,  no Default or Event of Default  under either the Original  Loan
Agreement  or this  Agreement  shall exist on the Closing  Date,  or would exist
after giving effect to the Loans to be made on such date.

                      (e)     The Agent and the Lenders shall have received such
opinions of counsel for each Borrower as the Agent or any Lender shall  request,
each such opinion to be in a form, scope, and substance reasonably  satisfactory
to the Agent, the Lenders, and their respective counsel.



<PAGE>



                      (f)  [Intentionally omitted.]

                      (g)     [Intentionally omitted.]

                      (h)     The Agent shall have received an ALTA title
policy, or at the Agent's discretion,  a bringdown of an ALTA title policy, by a
title  insurance  company  satisfactory  to Agent in an  amount  and in form and
substance  acceptable to Agent,  insuring that the Mortgages  constitute  valid,
first  priority  record  Liens  in favor of the  Agent in the  Premises  covered
thereby,  with no exceptions  other than Permitted  Liens and such exceptions as
may be acceptable to the Agent in its sole discretion.

                      (i)     The Agent shall have received copies of the
Acquisition  Order  certified  by the  Bankruptcy  Court  and  the  Bill of Sale
certified by an officer of the Borrowers in form and substance  satisfactory  to
the Agent.

                      (j)     [Intentionally omitted.]

                      (k)     The Agent shall have received financing statements
prepared for filing under the UCC of all  jurisdictions  that the Agent may deem
necessary or  desirable  in order to perfect the Agent's  Lien (which  financing
statements shall have been delivered to a filing service acceptable to the Agent
so that filing thereof with the appropriate  Governmental  Authorities can occur
concurrently with the Closing Date).

                      (l)     The Agent and the Lenders shall have received
certified copies of all consents or approvals of any  Governmental  Authority or
other  Person  which  the  Agent  and the  Lenders  determine  are  required  in
connection with the transactions contemplated by this Agreement.

                      (m)     [Intentionally omitted.]

                      (n)     The Agent shall have received all documents,
instruments,  opinions and other materials described on Exhibit D, to the extent
such items are not otherwise specifically referenced in this Section 10.1.

                      (o)     Each Borrower shall have paid all fees and
expenses of the Agent and the Attorney Costs incurred in connection  with any of
the Loan Documents and the transactions contemplated thereby.

                      (p)     The Agent shall have received evidence, in form,
scope,  and substance,  reasonably  satisfactory  to the Agent, of all insurance
coverage as required by this Agreement.

                      (q)     The Agent and the Lenders shall have examined the
books of account and other records and files of each Borrower and to make copies
thereof,  and  conducted  a  pre-closing  audit  which  shall  include,  without
limitation,  verification  of Inventory,  Accounts,  and  Availability,  and the
results of such examination and audit shall have been reasonably satisfactory to
the Agent and the Lenders in all respects.


<PAGE>



                      (r)     All proceedings taken in connection with the
transactions  contemplated by this Agreement, all other Loan Documents, the Plan
or  Reorganization,  the Acquisition  Order, the Bill of Sale and all documents,
instruments  and other matters  incident hereto or thereto shall be satisfactory
in form,  scope,  and substance to the Agent,  the Lenders and their  respective
counsel.

         The  acceptance  by any  Borrower of any Loans made on the Closing Date
shall be deemed to be a representation and warranty made by such Borrower to the
effect  that all of the  conditions  precedent  to the making of such Loans have
been satisfied, with the same effect as delivery to the Agent and the Lenders of
a certificate signed by a Responsible Officer of the Borrower, dated the Closing
Date, to such effect.

         Execution  and  delivery to the Agent by a Lender of a  counterpart  of
this  Agreement  shall  be  deemed  confirmation  by such  Lender  that  (i) all
conditions   precedent  in  this  Section  10.1  have  been   fulfilled  to  the
satisfaction  of such Lender and (ii) the decision of such Lender to execute and
deliver to the Agent an executed  counterpart of this Agreement was made by such
Lender independently and without reliance on the Agent or any other Lender as to
the satisfaction of any condition precedent set forth in this Section 10.1.

         10.2  Conditions  Precedent to Each Loan. The obligation of the Lenders
to make each Loan,  including any Revolving  Loans on the Closing Date,  and the
obligation  of the  Agent to take  reasonable  steps to cause to be issued or to
provide  Credit  Support  for any  Letter of Credit  and the  obligation  of the
Lenders to  participate  in Letters of Credit or Credit  Support  for Letters of
Credit,  shall be subject to the further conditions  precedent that on and as of
the date of any such extension of credit:

                      (a)     the following statements shall be true, and the
acceptance  by any  Borrower of any  extension of credit shall be deemed to be a
statement to the effect set forth in clauses (i) and (ii),  with the same effect
as the  delivery  to the  Agent and the  Lenders  of a  certificate  signed by a
Responsible Officer, dated the date of such extension of credit, stating that:

                            (i)    The representations and warranties contained
in this  Agreement  and the other Loan  Documents  are  correct in all  material
respects on and as of the date of such extension of credit as though made on and
as of such date, other than any such  representation or warranty which expressly
relates to an earlier date; and

                           (ii)     No event has occurred and is continuing, or
would result from such extension of credit, which constitutes a
Default or an Event of Default; and

                      (b)     no order, judgment or decree of any Governmental
Authority and no law,  rule or regulation  applicable to the Agent or any Lender
shall purport by its terms to enjoin, restrain or


<PAGE>



otherwise prohibit the making of such Loan or issuance of such
Letter of Credit or Credit Support; and

                      (c)     without limiting Section 10.1(b), the amount of
the  Aggregate  Availability  and the  Availability  for any  Borrower  shall be
sufficient  to  make  such  Revolving  Loan  without   exceeding  the  Aggregate
Availability  and the Availability  for such Borrower,  respectively,  provided,
however,  that the foregoing  conditions  precedent  are not  conditions to each
Lender  participating  in or reimbursing BABC or the Agent for such Lender's Pro
Rata Share of any BABC Loan or Agent  Advance as provided  in  Sections  2.2(h),
2.2(i), and 2.2(j).


                                                    ARTICLE 11

                                                 DEFAULT; REMEDIES

         11.1 Events of Default. It shall constitute an event of default ("Event
of Default") if any one or more of the following shall occur for any reason:

                      (a)     any failure to pay the principal of or interest or
premium on any of the Obligations when due, whether upon demand or
otherwise;

                      (b)     any representation or warranty made or deemed made
by any  Borrower in this  Agreement or in any of the other Loan  Documents,  any
Financial Statement, or any certificate furnished by any Borrower at any time to
the Agent or any Lender shall prove to be untrue in any  material  respect as of
the date on which made, deemed made, or furnished;

                      (c)     any Borrower shall (i) fail to comply with any of
the  covenants  set forth in Article 9 (other than  Sections 9.1, 9.2, 9.3, 9.4,
9.6,  9.7,  9.8 or 9.29) or Article 6 or Section 7.1 or (ii) fail to comply with
any of the  covenants  set forth in (A) Sections 9.1, 9.2, 9.3, 9.4, 9.6, 9.7 or
9.8, if such failure shall have existed for more than 20 days,  (B) Sections 7.2
or 7.3, if such  failure  shall have existed for more than 3 days or (C) Section
9.29,  if such failure  shall have  existed for more than 10 days,  in each case
after the date that such Borrower discovers such failure (or the date of Agent's
request in the case of Section 9.29);

                      (d)     except as provided in Sections 11.1(a) and
11.1(c),  any default shall occur in the observance or performance of any of the
covenants  and  agreements  of any Borrower  contained in this  Agreement or any
other Loan Documents, and the continuance of such default remains unremedied for
a period of 20 days;

                      (e)     any default shall occur in the observance or
performance of any of the covenants and agreements  contained in this Agreement,
any other Loan  Documents,  or any other  agreement  entered into at any time to
which  any  Borrower  and the  Agent or any  Lender  are  party,  or if any such
agreement or document shall  terminate  (other than in accordance with its terms
or the terms hereof or with the written consent of the Agent and the Majority


<PAGE>



Lenders) or become void or unenforceable, without the written
consent of the Agent and the Majority Lenders;

                      (f)     default shall occur with respect to any Debt For
Borrowed Money (other than the  Obligations) in an outstanding  principal amount
which exceeds  $1,000,000 or under any agreement or instrument under or pursuant
to which  any such  Debt For  Borrowed  Money  may have  been  issued,  created,
assumed, or guaranteed by any Borrower, and such default shall continue for more
than the period of grace, if any, therein specified, if the effect thereof (with
or  without  the  giving  of  notice  or  further  lapse  of time or both) is to
accelerate,  or to permit  the  holders of any such Debt For  Borrowed  Money to
accelerate,  the maturity of any such Debt For Borrowed  Money; or any such Debt
For  Borrowed  Money  shall be  declared  due and  payable or be  required to be
prepaid (other than by a regularly  scheduled required  prepayment) prior to the
stated maturity thereof;

                      (g)     any Borrower shall (i) file a voluntary petition
in  bankruptcy or file a voluntary  petition or an answer or otherwise  commence
any action or proceeding seeking reorganization,  arrangement or readjustment of
its debts or for any other relief under the federal Bankruptcy Code, as amended,
or under any other bankruptcy or insolvency act or law, state or federal, now or
hereafter  existing,  or  consent  to,  approve  of, or  acquiesce  in, any such
petition,  action or proceeding;  (ii) apply for or acquiesce in the appointment
of a receiver, assignee, liquidator,  sequestrator,  custodian, monitor, trustee
or similar officer for it or for all or any part of its property;  (iii) make an
assignment for the benefit of creditors;  or (iv) be unable generally to pay its
debts as they become due;

                      (h)     an involuntary petition shall be filed or an
action or proceeding  otherwise commenced seeking  reorganization,  arrangement,
consolidation  or  readjustment  of the debts of any  Borrower  or for any other
relief under the Bankruptcy  Code, as amended,  or under any other bankruptcy or
insolvency  act or law, state or federal,  now or hereafter  existing and either
(i) such petition,  proposal, action or proceeding shall not have been dismissed
within a period of sixty (60) days after its  commencement  or (ii) an order for
relief against such Borrower shall have been entered in such proceeding;

                      (i)     a receiver, assignee, liquidator, sequestrator,
custodian,  monitor,  trustee or similar  officer for any Borrower or for all or
any  part of its  property  shall  be  appointed  or a  warrant  of  attachment,
execution or similar  process  shall be issued  against any material part of the
property  of such  Borrower  and such  appointment  continues  or such  warrant,
execution or similar process is not released,  vacated or fully bonded for sixty
(60) days;

                      (j)     any Borrower shall file a certificate of
dissolution  under  applicable  state law or shall be  liquidated,  dissolved or
wound-up or shall commence or have commenced against it any action or proceeding
for dissolution, winding-up or liquidation and, in the case where such action or
proceeding  is commenced  against it, such action or  proceeding  shall not have
been


<PAGE>



dismissed within sixty (60) days after its commencement, or shall
take any corporate action in furtherance thereof;

                      (k)     all or any material part of the property of any
Borrower shall be nationalized,  expropriated or condemned,  seized or otherwise
appropriated, or custody or control of such property or of any Borrower shall be
assumed by any Governmental  Authority or any court of competent jurisdiction at
the instance of any Governmental Authority, except where contested in good faith
by proper  proceedings  diligently  pursued  where a stay of  enforcement  is in
effect;

                      (l)     any guaranty of the Obligations shall be
terminated, revoked or declared void or invalid;

                      (m)     one or more judgments or orders for the payment of
money  aggregating  in  excess of  $1,000,000  which  amount  shall not be fully
covered by  insurance,  shall be  rendered  against  any  Borrower  and  remains
undischarged, unvacated, unbounded or unstayed for a period of thirty (30) days;
provided,  however,  that,  notwithstanding  the foregoing,  an Event of Default
shall be deemed to have occurred  immediately  upon the  enforcement of any such
judgment or order;

                      (n)     any loss, theft, damage or destruction of any item
or items of Collateral or other property of any Borrower occurs which materially
and adversely affects the property, business, operation, prospects, or condition
of such Borrower;

                      (o)     there occurs a Material Adverse Effect;

                      (p)     there is filed against any Borrower any criminal
action,  suit or  proceeding  under any  federal or state  racketeering  statute
(including,   without   limitation,   the  Racketeer   Influenced   and  Corrupt
Organization Act of 1970), which action, suit or proceeding (1) is not dismissed
within one hundred  twenty (120) days,  and (2) could  reasonably be expected to
result  in the  confiscation  or  forfeiture  of  any  material  portion  of the
Collateral;

                      (q)     for any reason other than the failure of the Agent
to take any action available to it to maintain  perfection of the Agent's Liens,
pursuant to the Loan Documents, any Loan Document ceases to be in full force and
effect  or any Lien with  respect  to any  material  portion  of the  Collateral
intended to be secured  thereby  ceases to be, or is not,  valid,  perfected and
prior to all other Liens (other than Permitted Liens) or is terminated,  revoked
or declared void;

                      (r)     (i) an ERISA Event shall occur with respect to a
Pension Plan or  Multi-employer  Plan which has resulted or would  reasonably be
expected to result in liability  of any Borrower  under Title IV of ERISA to the
Pension Plan,  Multi-employer  Plan or the PBGC in an aggregate amount in excess
of $1,000,000; (ii) the aggregate amount of Unfunded Pension Liability among all
Pension Plans at any time exceeds $5,000,000; or (iii) any Borrower or any ERISA
Affiliate shall fail to pay when due, after the expiration of


<PAGE>



any  applicable  grace  period,  any  installment  payment  with  respect to its
withdrawal  liability under Section 4201 of ERISA under a Multi-employer Plan in
an aggregate amount in excess of $1,000,000;

                      (s)     there shall occur one or more sales, transfers or
other dispositions of Capital Stock of any Borrower,  or securities  convertible
into or  exchangeable  for such Capital Stock, or rights to acquire such Capital
Stock, to one or more purchasers,  or any other event,  such that after, or as a
direct result of, such sale, transfer, disposition, or event (A) any "person" or
related "group" of persons (within the meaning of Sections 13(d)(3) and 14(d)(2)
of the Exchange  Act) becomes the  "beneficial  owner" (as defined in Rule 13d-3
under the  Exchange  Act) of more than 50% of the total voting power of the then
outstanding Capital Stock of such Borrower  (calculated on a fully diluted basis
in  accordance  with GAAP) or (B) any  "person"  or  related  "group" of persons
(within the meaning of Sections 13(d)(3) and 14(2) of the Exchange Act) acquires
directly or indirectly  the power to elect a majority of the directors  onto the
board of directors of such Borrower; or

                      (t)     one or more defaults shall occur under the Plan of
Reorganization,  and such  default(s)  shall  continue  for more  than the grace
period, if any, therein specified.

         11.2  Remedies.  (a) If a Default  or an Event of Default  exists,  the
Agent may,  in its  discretion,  and shall,  at the  direction  of the  Majority
Lenders,  do one or more of the following at any time or times and in any order,
without  notice to or demand on any  Borrower:  (i) reduce the Maximum  Revolver
Amount, or the advance rates against Eligible Accounts and/or Eligible Inventory
used in  computing  the  Aggregate  Availability  and the  Availability  of such
Borrower,  or reduce one or more of the other  elements  used in  computing  the
Aggregate Availability and the Availability of such Borrower;  (ii) restrict the
amount of or refuse to make  Revolving  Loans;  and (iii)  restrict or refuse to
arrange  for or  provide  Letters  of Credit or Credit  Support.  If an Event of
Default exists,  the Agent shall, at the direction of the Majority  Lenders,  do
one or more of the  following,  in  addition  to the  actions  described  in the
preceding sentence,  at any time or times and in any order, without notice to or
demand on any Borrower:  (a) terminate the Commitments  and this Agreement;  (b)
declare any or all  Obligations  to be  immediately  due and payable;  provided,
however,  that upon the occurrence of any Event of Default described in Sections
11.1(e),  11.1(f),  11.1(g), or 11.1(h), the Commitments shall automatically and
immediately  expire and all Obligations shall  automatically  become immediately
due and payable  without  notice or demand of any kind; and (c) pursue its other
rights and remedies under the Loan Documents and applicable law.

                      (b)     If an Event of Default has occurred and is
continuing: (i) the Agent shall have for the benefit of the Lenders, in addition
to all other rights of the Agent and the  Lenders,  the rights and remedies of a
secured party under the UCC; (ii) the Agent may, at any time, take possession of
the Collateral and keep it on any Borrower's  premises,  at no cost to the Agent
or any  Lender,  or remove any part of it to such  other  place or places as the
Agent may desire, or such Borrower shall, upon the Agent's


<PAGE>



demand, at the Borrowers' cost, assemble the Collateral and make it available to
the Agent at a place reasonably convenient to the Agent; and (iii) the Agent may
sell and deliver  any  Collateral  at public or private  sales,  for cash,  upon
credit or  otherwise,  at such  prices  and upon such  terms as the Agent  deems
advisable,  in its sole  discretion,  and may, if the Agent deems it reasonable,
postpone or adjourn any sale of the  Collateral by an  announcement  at the time
and place of sale or of such  postponed or adjourned  sale without  giving a new
notice of sale. Without in any way requiring notice to be given in the following
manner,  each Borrower agrees that any notice by the Agent of sale,  disposition
or other intended action hereunder or in connection  herewith,  whether required
by the UCC or otherwise,  shall constitute reasonable notice to such Borrower if
such notice is mailed by registered or certified mail, return receipt requested,
postage prepaid,  or is delivered  personally against receipt, at least five (5)
Business Days prior to such action to such  Borrower's  address  specified in or
pursuant to Section 15.8. If any  Collateral is sold on terms other than payment
in full at the time of sale,  no credit shall be given  against the  Obligations
until the Agent or the Lenders  receive  payment,  and if the buyer  defaults in
payment,  the Agent may  resell the  Collateral  without  further  notice to any
Borrower.  In the event the Agent seeks to take possession of all or any portion
of the Collateral by judicial process, each Borrower irrevocably waives: (a) the
posting  of any bond,  surety or  security  with  respect  thereto  which  might
otherwise be required;  (b) any demand for possession  prior to the commencement
of any suit or action to recover the Collateral;  and (c) any  requirement  that
the Agent retain  possession and not dispose of any Collateral until after trial
or final  judgment.  Each  Borrower  agrees that the Agent has no  obligation to
preserve  rights to the  Collateral or marshal any Collateral for the benefit of
any Person. The Agent is hereby granted a license or other right to use, without
charge, each Borrower's labels, patents,  copyrights, name, trade secrets, trade
names,  trademarks,   and  advertising  matter,  or  any  similar  property,  in
completing  production  of,  advertising  or selling  any  Collateral,  and each
Borrower's rights under all licenses and all franchise agreements shall inure to
the Agent's  benefit  for such  purpose.  The  proceeds of sale shall be applied
first  to all  expenses  of sale,  including  attorneys'  fees,  and then to the
Obligations in whatever order the Agent elects. The Agent will return any excess
to the  applicable  Borrower  and the  Borrowers  shall  remain  liable  for any
deficiency.

                      (c)     If an Event of Default occurs, each Borrower
hereby  waives all rights to notice and  hearing  prior to the  exercise  by the
Agent of the Agent's rights to repossess the Collateral without judicial process
or to replevy, attach or levy upon the Collateral without notice or hearing.


                                                    ARTICLE 12

                                               TERM AND TERMINATION

         12.1 Term and Termination.  The term of this Agreement shall end on the
Stated Termination Date. The Agent upon direction from


<PAGE>



the  Majority  Lenders may  terminate  this  Agreement  without  notice upon the
occurrence of an Event of Default.  Upon the effective  date of  termination  of
this Agreement for any reason whatsoever,  all Obligations  (including,  without
limitation, all unpaid principal,  accrued interest and any early termination or
prepayment fees or penalties) shall become  immediately due and payable and each
Borrower shall  immediately  arrange for the  cancellation  of Letters of Credit
then outstanding.  Notwithstanding the termination of this Agreement,  until all
Obligations are  indefeasibly  paid and performed in full in cash, each Borrower
shall remain bound by the terms of this  Agreement  and shall not be relieved of
any of its Obligations hereunder, and the Agent and the Lenders shall retain all
their rights and remedies hereunder (including,  without limitation, the Agent's
Liens in and all rights and  remedies  with  respect  to all then  existing  and
after-arising Collateral).


                                                    ARTICLE 13

           AMENDMENTS; WAIVER; PARTICIPATION; ASSIGNMENTS; SUCCESSORS

         13.1 No Waivers;  Cumulative  Remedies.  No failure by the Agent or any
Lender to exercise  any right,  remedy,  or option  under this  Agreement or any
present or future supplement thereto, or in any other agreement between or among
any  Borrower  and the Agent  and/or  any  Lender,  or delay by the Agent or any
Lender in exercising the same, will not operate as a waiver  thereof.  No waiver
by the Agent or any Lender will be effective  unless it is in writing,  and then
only to the extent specifically stated. No waiver by the Agent or the Lenders on
any  occasion  shall  affect or diminish  the Agent's and each  Lender's  rights
thereafter to require  strict  performance  by the Borrowers of any provision of
this  Agreement.  The Agent's and each Lender's rights under this Agreement will
be cumulative  and not exclusive of any other right or remedy which the Agent or
any Lender may have.

         13.2  Amendments  and  Waivers.  (a)(i) No  amendment  or waiver of any
provision of the Fee Agreement,  and no consent with respect to any departure by
any Borrower  therefrom,  shall be effective unless the same shall be in writing
and signed by the Agent and each Borrower and (ii) no amendment or waiver of any
provision  of this  Agreement  or any other Loan  Document  (other  than the Fee
Agreement),  and no  consent  with  respect  to any  departure  by any  Borrower
therefrom,  shall be effective unless the same shall be in writing and signed by
the  Majority  Lenders (or by the Agent at the written  request of the  Majority
Lenders)  and  each  Borrower,  and (b) any  such  waiver  or  consent  shall be
effective only in the specific  instance and for the specific  purpose for which
given;  provided,  however,  that no such waiver,  amendment,  or consent shall,
unless in writing and signed by all the Lenders and  acknowledged  by the Agent,
do any of the following:

                      i.      increase or extend the Commitment of any Lender;

                      ii.     postpone or delay any date fixed by this Agreement
or any other Loan Document for any payment of principal, interest,


<PAGE>



fees or other amounts due to the Lenders (or any of them) hereunder
or under any other Loan Document;

                      iii.    reduce the principal of, or the rate of interest
specified herein on any Loan, or any fees or other amounts payable
hereunder or under any other Loan Document;

                      iv.     change the percentage of the Commitments or of the
aggregate unpaid principal amount of the Loans which is required
for the Lenders or any of them to take any action hereunder;

                      v.      increase any of the percentages set forth in the
definition of Availability;

                      vi.     amend this Section or any provision of the
Agreement providing for consent or other action by all Lenders;

                      vii.    release Collateral other than as permitted by
Section 14.11;

                      viii.   change the definition of "Majority Lenders";

                      ix.     [Intentionally omitted.]; or

                      x.      increase the Maximum Revolver Amount, the Maximum
Inventory Loan, and Unused Letter of Credit Subfacility.

and, provided  further,  that no amendment,  waiver or consent shall,  unless in
writing and signed by the Agent,  affect the rights or duties of the Agent under
this Agreement or any other Loan Document. Notwithstanding any of the foregoing,
Schedules 8.5 (if such amendment  adds or otherwise  relates to any Affiliate of
the Borrower), 8.3, 8.4, 8.17, 8.18 and 8.28 may be amended by five (5) Business
Days'  prior  written  notice,  and  Schedules  8.5 (if such  amendment  adds or
otherwise relates to any Subsidiary of the Borrower), 8.13, 8.14 and 8.29 may be
amended by thirty (30) Business Days' prior written notice,  to the Agent by any
Borrower of any change  thereto  without  any further  action on the part of the
Agent or any Lender.

         13.3         Assignments; Participation.

                      (a)     Any Lender may, upon prior written notice to
Forstmann and receipt of the prior written  consent of the Agent (which  consent
shall  not be  withheld  unreasonably),  assign  and  delegate  to  one or  more
commercial  lenders  (provided  that no written  consent  of the Agent  shall be
required in  connection  with any  assignment  and  delegation by a Lender to an
Affiliate of such Lender) (each an "Assignee")  all, or any ratable part of all,
of the Loans,  the  Commitments  and the other  rights and  obligations  of such
Lender  hereunder,  in a minimum  amount of  $10,000,000  or if less the  entire
amount of such Lender's Commitment;  provided, however, that after giving effect
to any  assignment of less than all of its Commitment  hereunder,  the assigning
Lender shall have a Commitment of at least $10,000,000;  provided, further, that
each  Borrower and the Agent may continue to deal solely and directly  with such
Lender in connection with the interest so assigned to an


<PAGE>



Assignee  until (i) written  notice of such  assignment,  together  with payment
instructions,  addresses and related  information  with respect to the Assignee,
shall  have  been  given  to  Forstmann  and the  Agent by such  Lender  and the
Assignee;  (ii) such Lender and its Assignee  shall have  delivered to Forstmann
and the Agent an Assignment and Acceptance in the form of Exhibit G ("Assignment
and Acceptance")  together with any Note or Notes subject to such assignment and
(iii) the assignor  Lender or Assignee has paid to the Agent a processing fee in
the amount of $3,000.

                      (b)     From and after the date that the Agent notifies
the assignor  Lender that it has received an executed  Assignment and Acceptance
and payment of the above-referenced  processing fee, (i) the Assignee thereunder
shall  be a party  hereto  and,  to the  extent  that  rights  and  obligations,
including,  but not  limited to, the  obligation  to  participate  in Letters of
Credit and Credit  Support have been assigned to it pursuant to such  Assignment
and Acceptance, shall have the rights and obligations of a Lender under the Loan
Documents,  and (ii) the assignor  Lender  shall,  to the extent that rights and
obligations  hereunder and under the other Loan  Documents have been assigned by
it pursuant to such  Assignment  and  Acceptance,  relinquish  its rights and be
released  from  its  obligations  under  this  Agreement  (and in the case of an
Assignment and Acceptance  covering all or the remaining portion of an assigning
Lender's rights and obligations under this Agreement, such Lender shall cease to
be a party hereto).

                      (c)     By executing and delivering an Assignment and
Acceptance,  the assigning Lender thereunder and the Assignee thereunder confirm
to and agree with each other and the other parties hereto as follows:  (1) other
than as provided in such Assignment and Acceptance,  such assigning Lender makes
no representation or warranty and assumes no responsibility  with respect to any
statements,  warranties or  representations  made in or in connection  with this
Agreement or the execution,  legality,  validity,  enforceability,  genuineness,
sufficiency  or value of this  Agreement  or any other Loan  Document  furnished
pursuant hereto;  (2) such assigning Lender makes no  representation or warranty
and assumes no  responsibility  with respect to the  financial  condition of any
Borrower  or  the  performance  or  observance  by  any  Borrower  of any of its
obligations under this Agreement or any other Loan Document  furnished  pursuant
hereto;  (3)  such  Assignee  confirms  that  it has  received  a copy  of  this
Agreement,  together with such other  documents and information as it has deemed
appropriate  to make its own credit  analysis  and  decision  to enter into such
Assignment and  Acceptance;  (4) such Assignee will,  independently  and without
reliance upon the Agent, such assigning Lender or any other Lender, and based on
such  documents  and  information  as it shall  deem  appropriate  at the  time,
continue to make its own credit  decisions in taking or not taking  action under
this Agreement; (5) such Assignee appoints and authorizes the Agent to take such
action as agent on its behalf and to exercise  such powers under this  Agreement
as are delegated to the Agent by the terms hereof,  together with such powers as
are reasonably  incidental  thereto;  and (6) such Assignee  agrees that it will
perform in accordance with their terms all of the obligations which by the terms
of this Agreement are required to be performed by it as a Lender.


<PAGE>



                      (d)     Within five Business Days after its receipt of
notice by the Agent that it has received an executed  Assignment  and Acceptance
and payment of the  processing  fee, each Borrower  shall execute and deliver to
the Agent,  new Notes  evidencing  such  Assignee's  assigned  Loans and, if the
assignor  Lender  has  retained  a  portion  of its  Loans  and its  Commitment,
replacement  Notes in the principal amount of the Loans retained by the assignor
Lender (such Notes to be in exchange  for, but not in payment of, the Notes held
by such  Lender).  Immediately  upon  payment  of the  processing  fee under the
Assignment and  Acceptance,  this Agreement shall be deemed to be amended to the
extent,  but only to the  extent,  necessary  to  reflect  the  addition  of the
Assignee and the resulting adjustment of the Commitments arising therefrom.  The
Commitment  allocated  to each  Assignee  shall reduce such  Commitments  of the
assigning Lender pro tanto.

                      (e)     Any Lender may at any time sell to one or more
commercial  banks,  financial  institutions,  or other  commercial  lenders  not
Affiliates  of any  Borrower (a  "Participant")  participating  interests in any
Loans, the Commitment of that Lender and the other interests of that Lender (the
"Originating  Lender")  hereunder and under the other Loan Documents;  provided,
however,  that (i) the  Originating  Lender's  obligations  under this Agreement
shall  remain  unchanged,  (ii)  the  Originating  Lender  shall  remain  solely
responsible for the performance of such obligations, (iii) the Borrowers and the
Agent shall continue to deal solely and directly with the Originating  Lender in
connection  with the  Originating  Lender's  rights and  obligations  under this
Agreement  and the other Loan  Documents,  and (iv) no Lender shall  transfer or
grant any  participating  interest  under  which the  Participant  has rights to
approve  any  amendment  to, or any  consent or waiver  with  respect  to,  this
Agreement or any other Loan Document,  and all amounts  payable by the Borrowers
hereunder shall be determined as if such Lender had not sold such participation;
except that, if amounts  outstanding under this Agreement are due and unpaid, or
shall  have  been  declared  or  shall  have  become  due and  payable  upon the
occurrence of an Event of Default,  each Participant shall be deemed to have the
right of set-off in respect of its participating interest in amounts owing under
this  Agreement to the same extent and subject to the same  limitation as if the
amount of its participating interest were owing directly to it as a Lender under
this  Agreement.  Notwithstanding  anything  to the  contrary  in the  foregoing
sentence,  any participant may be given the right to require the Lender granting
such  participant's  participation  to vote  against  (1) the  release of all or
substantially  all of the  Collateral,  and (2) any amendment,  modification  or
waiver of any  provision of Article 2 or 3 relating to the  principal  amount of
the Loans or Letter of Credit or Credit Support Obligations,  the maturity dates
of the Loans, interest and fees payable hereunder (but not a waiver of a Default
or Event of Default  that would result in the  reduction  of the  interest  rate
payable with respect to any Borrowing from the Default Rate to the LIBOR Rate or
Base Rate),  the  interest  rates borne by the Loans and the amounts of any fees
payable under Sections 3.4, 3.5 and 3.6.

                      (f)     Notwithstanding any other provision in this
Agreement, any Lender may at any time create a security interest


<PAGE>



in, or  pledge,  all or any  portion of its rights  under and  interest  in this
Agreement  and the  Note  held by it in  favor of any  Federal  Reserve  Bank in
accordance with Regulation A of the FRB or U.S. Treasury  Regulation 31 CFR Code
203.14,  and such  Federal  Reserve  Bank may  enforce  such  pledge or security
interest in any manner
permitted under applicable law.


                                                    ARTICLE 14

                                                     THE AGENT

         14.1 Appointment and  Authorization.  Each Lender hereby designates and
appoints BankAmerica Business Credit, Inc. as its Agent under this Agreement and
the other Loan Documents and each Lender hereby irrevocably authorizes the Agent
to take such action on its behalf under the  provisions  of this  Agreement  and
each other Loan  Document and to exercise such powers and perform such duties as
are expressly  delegated to it by the terms of this  Agreement or any other Loan
Document,  together with such powers as are reasonably  incidental thereto.  The
Agent agrees to act as such on the express conditions  contained in this Article
14. The  provisions  of this  Article 14 are solely for the benefit of the Agent
and the  Lenders  and no  Borrower  shall  have  any  rights  as a  third  party
beneficiary  of any of the  provisions  contained  herein.  Notwithstanding  any
provision to the contrary contained  elsewhere in this Agreement or in any other
Loan Document,  the Agent shall not have any duties or responsibilities,  except
those expressly set forth herein,  nor shall the Agent have or be deemed to have
any fiduciary relationship with any Lender, and no implied covenants, functions,
responsibilities,  duties,  obligations or  liabilities  shall be read into this
Agreement  or any other Loan  Document  or  otherwise  exist  against the Agent.
Without limiting the generality of the foregoing  sentence,  the use of the term
"agent" in this Agreement with reference to the Agent is not intended to connote
any  fiduciary or other  implied (or express)  obligations  arising under agency
doctrine of any applicable law. Instead, such term is used merely as a matter of
market  custom,  and is  intended  to create or reflect  only an  administrative
relationship  between  independent  contracting  parties.  Except  as  expressly
otherwise provided in this Agreement,  the Agent shall have and may use its sole
discretion  with  respect  to  exercising  or  refraining  from  exercising  any
discretionary  rights or taking or refraining  from taking any actions which the
Agent is expressly entitled to take or assert under this Agreement and the other
Loan Documents,  including,  without  limitation,  (a) the  determination of the
applicability  of  ineligibility  criteria  with respect to the  calculation  of
Aggregate  Availability and the Availability of any Borrower,  (b) the making of
Agent  Advances  pursuant to Section  2.2(i),  and (c) the  exercise of remedies
pursuant to Section  11.2,  and any action so taken or not taken shall be deemed
consented to by the Lenders.

         14.2  Delegation  of Duties.  The Agent may  execute  any of its duties
under this Agreement or any other Loan Document by or through agents,  employees
or  attorneys-in-fact  and shall be entitled to advice of counsel concerning all
matters  pertaining to such duties.  The Agent shall not be responsible  for the
negligence


<PAGE>



or misconduct of any agent or  attorney-in-fact  that it selects as long as such
selection was made without gross negligence or willful misconduct.

         14.3 Liability of Agent. None of the Agent-Related Persons shall (i) be
liable for any action  taken or omitted to be taken by any of them in good faith
under or in  connection  with this  Agreement or any other Loan  Document or the
transactions contemplated hereby (except for its own gross negligence or willful
misconduct),  or (ii) be responsible in any manner to any of the Lenders for any
recital,  statement,  representation  or  warranty  made by any  Borrower or any
Affiliate of any Borrower,  or any officer thereof,  contained in this Agreement
or in any other Loan Document, or in any certificate, report, statement or other
document  referred to or  provided  for in, or received by the Agent under or in
connection  with,  this Agreement or any other Loan  Document,  or the validity,
effectiveness,  genuineness,  enforceability or sufficiency of this Agreement or
any other Loan  Document,  or for any failure of any Borrower or any other party
to any Loan  Document to perform its  obligations  hereunder or  thereunder.  No
Agent-Related Person shall be under any obligation to any Lender to ascertain or
to  inquire  as to the  observance  or  performance  of  any  of the  agreements
contained in, or conditions of, this Agreement or any other Loan Document, or to
inspect  the  properties,  books or records of any  Borrower  or any  Borrower's
Affiliates.

         14.4  Reliance by Agent.  (a) The Agent shall be entitled to rely,  and
shall be fully  protected  in relying,  upon any  writing,  resolution,  notice,
consent, certificate, affidavit, letter, telegram, facsimile, telex or telephone
message,  statement  or other  document  or  conversation  believed  by it to be
genuine and correct and to have been signed,  sent or made by the proper  Person
or Persons,  and upon advice and statements of legal counsel  (including counsel
to any  Borrower),  independent  accountants  and other experts  selected by the
Agent.  The Agent  shall be fully  justified  in failing or refusing to take any
action  under this  Agreement or any other Loan  Document  unless it shall first
receive  such  advice  or  concurrence  of  the  Majority  Lenders  as it  deems
appropriate  and,  if it so  requests,  it  shall  first be  indemnified  to its
satisfaction  by the Lenders against any and all liability and expense which may
be incurred by it by reason of taking or continuing to take any such action. The
Agent shall in all cases be fully  protected in acting,  or in  refraining  from
acting,  under this  Agreement or any other Loan Document in  accordance  with a
request or consent of the Majority Lenders and such request and any action taken
or failure to act pursuant thereto shall be binding upon all of the Lenders.

                      (b)     For purposes of determining compliance with the
conditions  specified  in Section  10.1,  each  Lender  that has  executed  this
Agreement  shall be deemed to have  consented to,  approved or accepted or to be
satisfied  with,  each document or other matter either sent by the Agent to such
Lender for consent, approval, acceptance or satisfaction, or required thereunder
to be consented to or approved by or acceptable or satisfactory to the Lender.

         14.5         Notice of Default.  The Agent shall not be deemed to
have knowledge or notice of the occurrence of any Default or Event


<PAGE>



of  Default,  except  with  respect to  defaults  in the  payment of  principal,
interest  and fees  required  to be paid to the  Agent  for the  account  of the
Lenders,  unless the Agent shall have received  written  notice from a Lender or
any Borrower  referring to this  Agreement,  describing such Default or Event of
Default and stating  that such notice is a "notice of  default."  The Agent will
notify the Lenders of its receipt of any such notice.  The Agent shall take such
action with  respect to such  Default or Event of Default as may be requested by
the Majority  Lenders in accordance  with Article 11;  provided,  however,  that
unless and until the Agent has  received  any such  request,  the Agent may (but
shall not be obligated to) take such action, or refrain from taking such action,
with respect to such Default or Event of Default as it shall deem advisable.

         14.6  Credit  Decision.  Each  Lender  acknowledges  that  none  of the
Agent-Related Persons has made any representation or warranty to it, and that no
act by the Agent hereinafter  taken,  including any review of the affairs of any
Borrower and its Affiliates, shall be deemed to constitute any representation or
warranty by any  Agent-Related  Person to any Lender.  Each Lender represents to
the Agent that it has, independently and without reliance upon any Agent-Related
Person and based on such documents and information as it has deemed appropriate,
made  its own  appraisal  of and  investigation  into the  business,  prospects,
operations, property, financial and other condition and creditworthiness of each
Borrower and its Affiliates, and all applicable bank regulatory laws relating to
the transactions  contemplated  hereby,  and made its own decision to enter into
this  Agreement  and  to  extend  credit  to the  Borrowers.  Each  Lender  also
represents  that  it  will,   independently   and  without   reliance  upon  any
Agent-Related  Person and based on such  documents and  information  as it shall
deem  appropriate  at the  time,  continue  to  make  its own  credit  analysis,
appraisals and decisions in taking or not taking action under this Agreement and
the other Loan Documents,  and to make such investigations as it deems necessary
to inform itself as to the business, prospects,  operations, property, financial
and other  condition and  creditworthiness  of each Borrower and its Affiliates.
Except for notices,  reports and other documents expressly herein required to be
furnished  to the  Lenders  by the Agent,  the Agent  shall not have any duty or
responsibility  to  provide  any  Lender  with any  credit or other  information
concerning the business,  prospects,  operations,  property, financial and other
condition or  creditworthiness of any Borrower and its Affiliates which may come
into the possession of any of the Agent-Related Persons.

         14.7  Indemnification.  Whether  or not the  transactions  contemplated
hereby  are   consummated,   the  Lenders  shall   indemnify   upon  demand  the
Agent-Related  Persons  (to the  extent  not  reimbursed  by or on behalf of the
Borrowers and without  limiting the obligation of the Borrowers to do so), based
on their Pro Rata Shares,  from and against any and all Indemnified  Liabilities
as such term is defined  in Section  15.11;  provided,  however,  that no Lender
shall be liable for the payment to the  Agent-Related  Persons of any portion of
such  Indemnified   Liabilities   resulting  solely  from  such  Person's  gross
negligence or willful  misconduct.  Without  limitation of the  foregoing,  each
Lender shall reimburse the Agent


<PAGE>



upon  demand  for its  ratable  share  of any  costs or  out-of-pocket  expenses
(including  Attorney  Costs)  incurred  by the  Agent  in  connection  with  the
preparation,  execution, delivery,  administration,  modification,  amendment or
enforcement (whether through  negotiations,  legal proceedings or otherwise) of,
or legal advice in respect of rights or responsibilities  under, this Agreement,
any other Loan Document,  or any document contemplated by or referred to herein,
to the extent that the Agent is not reimbursed for such expenses by or on behalf
of the Borrowers.  The  undertaking in this Section shall survive the payment of
all Obligations hereunder and the resignation or replacement of the Agent.

         14.8 Agent in Individual  Capacity.  BABC and its  Affiliates  may make
loans to,  issue  letters of credit for the account of,  accept  deposits  from,
acquire equity interests in and generally engage in any kind of banking,  trust,
financial  advisory,  underwriting  or other  business with any Borrower and its
Affiliates as though BABC were not the Agent  hereunder and without notice to or
consent  of  the  Lenders.  The  Lenders  acknowledge  that,  pursuant  to  such
activities,  BABC  or its  Affiliates  may  receive  information  regarding  any
Borrower  or its  Affiliates  (including  information  that  may be  subject  to
confidentiality  obligations in favor of such Borrower) and acknowledge that the
Agent shall be under no obligation  to provide such  information  to them.  With
respect to its Loans,  BABC  shall  have the same  rights and powers  under this
Agreement  as any other  Lender and may  exercise the same as though it were not
the Agent,  and the terms "Lender" and "Lenders"  include BABC in its individual
capacity.

         14.9  Successor  Agent.  The  Agent may  resign as Agent  upon 30 days'
notice to the  Lenders  and the  Borrowers.  If the  Agent  resigns  under  this
Agreement, the Majority Lenders shall appoint from among the Lenders a successor
agent for the Lenders. If no successor agent is appointed prior to the effective
date of the resignation of the Agent,  the Agent may appoint,  after  consulting
with the Lenders and the  Borrowers,  a successor  agent from among the Lenders.
Upon the  acceptance  of its  appointment  as successor  agent  hereunder,  such
successor  agent  shall  succeed  to all the  rights,  powers  and duties of the
retiring  Agent and the term  "Agent"  shall mean such  successor  agent and the
retiring  Agent's  appointment,  powers and duties as Agent shall be terminated.
After any retiring  Agent's  resignation  hereunder as Agent,  the provisions of
this Article 14 shall inure to its benefit as to any actions taken or omitted to
be taken by it while it was Agent under this  Agreement.  If no successor  agent
has  accepted  appointment  as Agent by the date  which is 30 days  following  a
retiring Agent's notice of resignation,  the retiring Agent's  resignation shall
nevertheless thereupon become effective and the Lenders shall perform all of the
duties of the Agent hereunder  until such time, if any, as the Majority  Lenders
appoint a successor agent as provided for above.

         14.10        Withholding Tax.  (a) If any Lender is a foreign
corporation, partnership or trust within the meaning of Section
7701(a) of the Code and such Lender claims exemption from, or a
reduction of, U.S. withholding tax under Sections 1441 or 1442 of


<PAGE>



the Code, such Lender shall deliver to the Agent and each of the
Borrowers:

                      (x)(i)      two properly completed IRS Forms 1001 and W-8
(or applicable  successor forms) before the payment of any interest in the first
calendar  year and before the payment of any  interest in each third  succeeding
calendar year during which interest may be paid under this Agreement; or

                      (ii)             if such Lender claims that interest paid
under this Agreement is exempt from United States  withholding tax because it is
effectively connected with a United States trade or business of such Lender, two
properly completed and executed copies of IRS Form 4224 (or applicable successor
form)  before the payment of any  interest is due in the first  taxable  year of
such Lender and in each  succeeding  taxable  year of such Lender  during  which
interest may be paid under this Agreement, and IRS Form W-9; and

                      (y)     such other form or forms as may be required under
the Code or other laws of the United States as a condition to exemption from, or
reduction of, United States  withholding tax; unless in any such case any change
in treaty,  law or regulation  has occurred after the date such Lender becomes a
Lender  hereunder  which  renders  all such forms  inapplicable  or which  would
prevent such Lender from duly  completing and delivering any such form, and such
Lender so advises the Borrower and the Agent.

Such Lender agrees to promptly  notify the Agent and the Borrowers of any change
in circumstances  which would modify or render invalid any claimed  exemption or
reduction.

                      (b)     If any Lender claims exemption from, or reduction
of,  withholding tax under a United States tax treaty by providing IRS Form 1001
and  such  Lender  sells,  assigns,  grants a  participation  in,  or  otherwise
transfers all or part of the  Obligations of the Borrowers to such Lender,  such
Lender  agrees to notify  the Agent of the  percentage  amount in which it is no
longer the beneficial  owner of Obligations of the Borrowers to such Lender.  To
the extent of such  percentage  amount,  the Agent will treat such  Lender's IRS
Form 1001 as no longer valid.

                      (c)     If any Lender claiming exemption from United
States  withholding  tax by filing IRS Form 4224 with the Agent sells,  assigns,
grants a participation in, or otherwise transfers all or part of the Obligations
of  the  Borrowers  to  such  Lender,  such  Lender  agrees  to  undertake  sole
responsibility  for complying with the withholding tax  requirements  imposed by
Sections 1441 and 1442 of the Code.

                      (d)     If any Lender is entitled to a reduction in the
applicable  withholding tax, the Agent may withhold from any interest payment to
such Lender an amount equivalent to the applicable  withholding tax after taking
into account such  reduction.  If the forms or other  documentation  required by
subsection  (a) of this Section are not  delivered to the Agent,  then the Agent
may withhold from any interest payment to such Lender not


<PAGE>



providing  such  forms  or  other  documentation  an  amount  equivalent  to the
applicable withholding tax.

                      (e)     If the IRS or any other Governmental Authority of
the United States or other  jurisdiction  asserts a claim that the Agent did not
properly  withhold  tax from  amounts  paid to or for the  account of any Lender
(because the appropriate form was not delivered,  was not properly executed,  or
because  such  Lender  failed to notify  the Agent of a change in  circumstances
which rendered the exemption from, or reduction of, withholding tax ineffective,
or for any other  reason)  such Lender shall  indemnify  the Agent fully for all
amounts  paid,  directly  or  indirectly,  by the  Agent  as  tax or  otherwise,
including  penalties  and  interest,  and  including  any taxes  imposed  by any
jurisdiction  on the amounts  payable to the Agent under this Section,  together
with all costs and expenses  (including  Attorney Costs).  The obligation of the
Lenders under this  subsection  shall survive the payment of all Obligations and
the resignation or replacement of the Agent.

         14.11        Collateral Matters.

                      (a)     The Lenders hereby irrevocably authorize the
Agent,  at its option and in its sole  discretion,  to release any Agent's  Lien
upon any Collateral (i) upon the  termination of the Commitments and payment and
satisfaction in full by the Borrowers of all Loans and reimbursement obligations
in respect of Letters of Credit and Credit  Support,  and the termination of all
outstanding  Letters of Credit (whether or not any of such  obligations are due)
and all other Obligations;  (ii) constituting property being sold or disposed of
if the applicable  Borrower  certifies to the Agent that the sale or disposition
is made in compliance  with Section 9.9 (and the Agent may rely  conclusively on
any such certificate,  without further inquiry);  (iii) constituting property in
which the applicable Borrower owned no interest at the time the Lien was granted
or at any time thereafter;  (iv) constituting  property leased to the applicable
Borrower  under a lease which has expired or been  terminated  in a  transaction
permitted under this Agreement or (v) constituting property financed by Debt for
Borrower Money of the type described in Section  9.13(c) or (d) or acquired in a
sale and leaseback  transaction  permitted by Section  9.19.  Except as provided
above,  the Agent will not release any of the  Agent's  Liens  without the prior
written  authorization of the Majority Lenders;  provided that the Agent may, in
its discretion,  release the Agent's Liens on Collateral valued in the aggregate
not in excess of  $5,000,000  in any one year period  without the prior  written
authorization  of the Lenders.  Upon request by the Agent or any Borrower at any
time,  the Lenders will confirm in writing the Agent's  authority to release any
Agent's  Liens upon  particular  types or items of  Collateral  pursuant to this
Section 14.11.

                      (b)     Upon receipt by the Agent of any authorization
required  pursuant to Section  14.11(a) from the Majority Lenders of the Agent's
authority  to  release  any  Agent's  Liens  upon  particular  types or items of
Collateral,  and upon at least five (5) Business Days' prior written  request by
the applicable Borrower,  the Agent shall (and is hereby irrevocably  authorized
by the Lenders to) execute  such  documents  as may be necessary to evidence the
release


<PAGE>



of the Agent's Liens upon such Collateral; provided, however, that (i) the Agent
shall not be  required  to execute  any such  document  on terms  which,  in the
Agent's opinion, would expose the Agent to liability or create any obligation or
entail any consequence  other than the release of such Liens without recourse or
warranty,  and (ii) such release  shall not in any manner  discharge,  affect or
impair the  Obligations or any Liens (other than those expressly being released)
upon (or  obligations  of the  applicable  Borrower in respect of) all interests
retained by such Borrower,  including  (without  limitation) the proceeds of any
sale, all of which shall continue to constitute part of the Collateral.

                      (c)     The Agent shall have no obligation whatsoever to
any of the  Lenders  to  assure  that the  Collateral  exists or is owned by any
Borrower or is cared for,  protected or insured or has been encumbered,  or that
the Agent's  Liens have been  properly  or  sufficiently  or  lawfully  created,
perfected,  protected or enforced or are entitled to any particular priority, or
to  exercise  at all or in any  particular  manner  or  under  any duty of care,
disclosure  or  fidelity,  or  to  continue  exercising,   any  of  the  rights,
authorities  and powers granted or available to the Agent pursuant to any of the
Loan  Documents,  it  being  understood  and  agreed  that  in  respect  of  the
Collateral,  or any act, omission or event related thereto, the Agent may act in
any manner it may deem appropriate, in its sole discretion given the Agent's own
interest in the  Collateral  in its  capacity as one of the Lenders and that the
Agent shall have no other duty or liability  whatsoever  to any Lender as to any
of the foregoing.

         14.12 Agency for  Perfection.  Each Lender  hereby  appoints each other
Lender as agent for the purpose of perfecting the Lenders'  security interest in
assets which,  in accordance  with Article 9 of the UCC can be perfected only by
possession.  Should any Lender (other than the Agent)  obtain  possession of any
such Collateral,  such Lender shall notify the Agent thereof, and, promptly upon
the Agent's  request  therefor shall deliver such  Collateral to the Agent or in
accordance with the Agent's instructions.

         14.13  Payments  by Agent to  Lenders.  All  payments to be made by the
Agent to the Lenders shall be made by bank wire transfer or internal transfer of
immediately available funds to:

if to BABC:

                      Bank of America NT&SA
                      1850 Gateway Blvd.
                      Concord, CA 04520
                      ABA No. 121000358

                      For account of: BankAmerica
                      Business Credit Inc.
                      Account No. 12353-03848
                      For credit to: Forstmann & Company, Inc.



<PAGE>



if to a Lender,  as provided on the signature  pages hereof or in the Assignment
and Acceptance pursuant to which such Lender became a party hereto;

or pursuant to such other wire transfer instructions as each party may designate
for itself by written notice to the Agent.  Concurrently with each such payment,
the  Agent  shall  identify  whether  such  payment  (or  any  portion  thereof)
represents principal,  premium or interest on the Revolving Loans, Term Loans or
otherwise.

         14.14  Concerning the Collateral and the Related Loan  Documents.  Each
Lender  authorizes  and directs the Agent to enter into this  Agreement  and the
other Loan Documents relating to the Collateral,  for the ratable benefit of the
Agent and the Lenders.  Each Lender agrees that any action taken by the Agent or
the  Majority  Lenders,  as  applicable,  in  accordance  with the terms of this
Agreement  or the other  Loan  Documents  relating  to the  Collateral,  and the
exercise by the Agent or the Majority Lenders as applicable, of their respective
powers set forth  therein or herein,  together  with such other  powers that are
reasonably incidental thereto, shall be binding upon all of the Lenders.


                                                    ARTICLE 15

                                                   MISCELLANEOUS

         15.1  Cumulative  Remedies;  No  Prior  Recourse  to  Collateral.   The
enumeration  herein of the Agent's and each Lender's  rights and remedies is not
intended to be  exclusive,  and such rights and  remedies are in addition to and
not by way of  limitation of any other rights or remedies that the Agent and the
Lenders  may have  under  the UCC or other  applicable  law.  The  Agent and the
Lenders  shall have the right,  in their sole  discretion,  to  determine  which
rights and remedies are to be exercised and in which order.  The exercise of one
right or remedy  shall not  preclude  the  exercise of any others,  all of which
shall be cumulative. The Agent and the Lenders may, without limitation,  proceed
directly  against the  Borrowers  to collect the  Obligations  without any prior
recourse to the  Collateral.  No failure to exercise and no delay in exercising,
on the part of the Agent or any Lender,  any right,  remedy,  power or privilege
hereunder,  shall operate as a waiver  thereof;  nor shall any single or partial
exercise of any right,  remedy,  power or privilege hereunder preclude any other
or further exercise thereof or the exercise of any other right, remedy, power or
privilege.

         15.2 Severability.  The illegality or unenforceability of any provision
of this Agreement or any instrument or agreement required hereunder shall not in
any way  affect  or impair  the  legality  or  enforceability  of the  remaining
provisions of this Agreement or any instrument or agreement required hereunder.

         15.3         Governing Law; Choice of Forum; Service of Process.

                      (a)     THIS AGREEMENT SHALL BE INTERPRETED AND THE RIGHTS
AND LIABILITIES OF THE PARTIES HERETO DETERMINED IN ACCORDANCE WITH


<PAGE>



THE INTERNAL LAWS (AS OPPOSED TO THE CONFLICT OF LAWS  PROVISIONS)  OF THE STATE
OF NEW YORK, EXCEPT TO THE EXTENT THAT THE PERFECTION OF THE SECURITY  INTERESTS
GRANTED  HEREIN,  OR  THE  REMEDIES  HEREUNDER  IN  RESPECT  OF  ANY  PARTICULAR
COLLATERAL,  ARE GOVERNED BY THE LAWS OF A JURISDICTION  OTHER THAN THE STATE OF
NEW YORK;  PROVIDED  THAT THE AGENT AND THE  LENDERS  SHALL  RETAIN  ALL  RIGHTS
ARISING UNDER FEDERAL LAW.

                      (b)     ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO
THIS  AGREEMENT  OR ANY OTHER LOAN  DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE
STATE OF NEW YORK OR OF THE UNITED STATES FOR THE SOUTHERN DISTRICT OF NEW YORK,
AND BY EXECUTION  AND DELIVERY OF THIS  AGREEMENT,  EACH OF THE  BORROWERS,  THE
AGENT AND THE LENDERS  CONSENTS,  FOR ITSELF AND IN RESPECT OF ITS PROPERTY,  TO
THE NONEXCLUSIVE  JURISDICTION OF THOSE COURTS. EACH OF THE BORROWERS, THE AGENT
AND THE LENDERS IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING ANY OBJECTION TO THE
LAYING OF VENUE OR BASED ON THE  GROUNDS OF FORUM NON  CONVENIENS,  WHICH IT MAY
NOW OR  HEREAFTER  HAVE TO THE  BRINGING  OF ANY  ACTION OR  PROCEEDING  IN SUCH
JURISDICTION  IN RESPECT  OF THIS  AGREEMENT  OR ANY  DOCUMENT  RELATED  HERETO.
NOTWITHSTANDING  THE  FOREGOING:  (1) THE AGENT AND THE  LENDERS  SHALL HAVE THE
RIGHT TO BRING ANY ACTION OR PROCEEDING  AGAINST ANY BORROWER OR ITS PROPERTY IN
THE COURTS OF ANY OTHER  JURISDICTION THE AGENT OR THE LENDERS DEEM NECESSARY OR
APPROPRIATE  IN ORDER TO REALIZE ON THE  COLLATERAL  OR OTHER  SECURITY  FOR THE
OBLIGATIONS  AND (2) EACH OF THE PARTIES  HERETO  ACKNOWLEDGES  THAT ANY APPEALS
FROM THE COURTS DESCRIBED IN THE IMMEDIATELY  PRECEDING  SENTENCE MAY HAVE TO BE
HEARD BY A COURT LOCATED OUTSIDE THOSE JURISDICTIONS.

                      (c)     EACH BORROWER HEREBY WAIVES PERSONAL SERVICE OF
ANY AND ALL PROCESS UPON IT AND CONSENTS THAT ALL SUCH SERVICE OF PROCESS MAY BE
MADE BY REGISTERED MAIL (RETURN RECEIPT REQUESTED)  DIRECTED TO SUCH BORROWER AT
ITS ADDRESS SET FORTH IN SECTION  15.8 AND SERVICE SO MADE SHALL BE DEEMED TO BE
COMPLETED  FIVE (5) DAYS AFTER THE SAME SHALL HAVE BEEN SO DEPOSITED IN THE U.S.
MAILS.  NOTHING  CONTAINED HEREIN SHALL AFFECT THE RIGHT OF AGENT OR THE LENDERS
TO SERVE LEGAL PROCESS BY ANY OTHER MANNER PERMITTED BY LAW.

         15.4 WAIVER OF JURY  TRIAL.  THE  BORROWERS,  THE LENDERS AND THE AGENT
EACH WAIVE THEIR  RESPECTIVE  RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF
ACTION BASED UPON OR ARISING OUT OF OR RELATED TO THIS AGREEMENT, THE OTHER LOAN
DOCUMENTS,  OR THE TRANSACTIONS  CONTEMPLATED  HEREBY OR THEREBY, IN ANY ACTION,
PROCEEDING OR OTHER LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE PARTIES AGAINST
ANY OTHER PARTY OR ANY AGENT-RELATED  PERSON,  PARTICIPANT OR ASSIGNEE,  WHETHER
WITH RESPECT TO CONTRACT CLAIMS, TORT CLAIMS, OR OTHERWISE.  THE BORROWERS,  THE
LENDERS AND THE AGENT EACH AGREE THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE
TRIED BY A COURT TRIAL  WITHOUT A JURY.  WITHOUT  LIMITING  THE  FOREGOING,  THE
PARTIES FURTHER AGREE THAT THEIR  RESPECTIVE  RIGHT TO A TRIAL BY JURY IS WAIVED
BY OPERATION OF THIS SECTION AS TO ANY ACTION,  COUNTERCLAIM OR OTHER PROCEEDING
WHICH SEEKS, IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR ENFORCEABILITY OF
THIS AGREEMENT OR THE OTHER LOAN  DOCUMENTS OR ANY PROVISION  HEREOF OR THEREOF.
THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS,


<PAGE>



RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT AND THE
OTHER LOAN DOCUMENTS.

         15.5 Survival of Representations and Warranties. All of each Borrower's
representations  and warranties  contained in this  Agreement  shall survive the
execution, delivery, and acceptance thereof by the parties,  notwithstanding any
investigation by the Agent or the Lenders or their respective agents.

         15.6 Other Security and Guaranties.  The Agent,  may, without notice or
demand and without affecting the Borrower's obligations hereunder,  from time to
time: (a) take from any Person and hold  collateral  (other than the Collateral)
for the payment of all or any part of the Obligations  and exchange,  enforce or
release  such  collateral  or any  part  thereof;  and (b)  accept  and hold any
endorsement  or  guaranty of payment of all or any part of the  Obligations  and
release or  substitute  any such  endorser or  guarantor,  or any Person who has
given any Lien in any other collateral as security for the payment of all or any
part of the Obligations,  or any other Person in any way obligated to pay all or
any part of the Obligations.

         15.7 Fees and Expenses.  Each Borrower  jointly and severally agrees to
pay to the Agent, for its benefit,  on demand, all costs and expenses that Agent
pays or incurs in connection  with the  negotiation,  preparation,  syndication,
consummation, administration,  enforcement, and termination of this Agreement or
any of the other Loan Documents,  including,  without  limitation:  (a) Attorney
Costs;  (b) costs and expenses  (including  Attorney  Costs) for any  amendment,
supplement,  waiver,  consent, or subsequent closing in connection with the Loan
Documents and the transactions  contemplated  thereby; (c) costs and expenses of
lien and title searches and title insurance;  (d) taxes,  fees and other charges
for recording the Mortgages, filing financing statements and continuations,  and
other actions to perfect,  protect,  and continue the Agent's  Liens  (including
costs  and  expenses  paid or  incurred  by the  Agent  in  connection  with the
consummation of Agreement);  (e) sums paid or incurred to pay any amount or take
any action  required of any Borrower under the Loan Documents that such Borrower
fails to pay or take; (f) costs of appraisals, inspections, and verifications of
the Collateral,  including,  without limitation,  travel, lodging, and meals for
inspections of the  Collateral  and any Borrower's  operations by the Agent plus
the Agent's  then  customary  charge for field  examinations  and audits and the
preparation  of  reports  thereof  (such  charge is  currently  $750 per day (or
portion  thereof)  for each agent or employee of the Agent with  respect to each
field examination or audit); (g) costs and expenses of forwarding loan proceeds,
collecting  checks and other items of payment,  and establishing and maintaining
Payment  Accounts  and lock  boxes;  (h) costs and  expenses of  preserving  and
protecting the Collateral; and (i) costs and expenses (including Attorney Costs)
paid or  incurred  to obtain  payment of the  Obligations,  enforce  the Agent's
Liens, sell or otherwise realize upon the Collateral,  and otherwise enforce the
provisions  of the Loan  Documents,  or to defend any claims made or  threatened
against  the Agent or any Lender  arising out of the  transactions  contemplated
hereby (including, without limitation, preparations


<PAGE>



for and  consultations  concerning any such matters).  The Borrowers jointly and
severally  agree to pay on demand  reasonable  costs and expenses of each of the
Lenders (including  reasonable attorneys and paralegals' fees and disbursements)
paid or  incurred  to obtain  payment of the  Obligations,  enforce  the Agent's
Liens, sell or realize upon the Collateral, and otherwise enforce the provisions
of the Loan  Documents or to defend any claims made or  threatened  against such
Lender arising out of the transactions  contemplated hereby (including,  without
limitation, preparations for and consultations concerning any such matters). The
foregoing  shall not be  construed  to limit any  other  provisions  of the Loan
Documents  regarding  costs and expenses to be paid by any Borrower.  All of the
foregoing costs and expenses shall be charged to the applicable  Borrower's Loan
Account as Revolving Loans as described in Section 4.7.

         15.8 Notices. Except as otherwise provided herein, all notices, demands
and requests  that any party is required or elects to give to any other shall be
in  writing,  or by a  telecommunications  device  capable of creating a written
record,  and any such notice shall become  effective (a) upon personal  delivery
thereof,  including,  but not limited to, delivery by overnight mail and courier
service,  (b) four (4) days  after it shall  have been  mailed by United  States
mail, first class, certified or registered,  with postage prepaid, or (c) in the
case of notice by such a telecommunications  device, when properly  transmitted,
in each case addressed to the party to be notified as follows:

If to the Agent or to BABC:

                      BankAmerica Business Credit, Inc.
                      40 East 52nd Street
                      New York, New York 10022
                      Attention: Division Manager
                      Telephone: (212) 836-5100
                      Telecopy:         (212) 836-5167

                      with copies to:

                      BankAmerica Business Credit, Inc.
                      335 Madison Avenue
                      New York, New York 10017
                      Attention: Girolamo M. Saccone, Esq.
                      Telephone:  (212) 503-7230
                      Telecopy:          (212) 503-7350

                      and to:

                      Rogers & Wells LLP
                      200 Park Avenue
                      New York, New York 10166
                      Attention:  Alan M. Christenfeld, Esq.
                      Telephone:  (212) 878-8000
                      Telecopy:          (212) 878-8375




<PAGE>



If to any Borrower:

                      c/o Forstmann & Company, Inc.
                      1155 Avenue of the Americas
                      New York, New York 10036
                      Attention: Rod Peckham, Executive Vice President
                      Telephone: (212) 642-6900
                      Telecopy:  (212) 642-6942

                      with copies to:

                      Christy & Viener
                      Rockefeller Center
                      620 Fifth Avenue
                      New York, New York 10020-2457
                      Attention: Laurence S. Markowitz, Esq.
                      Telephone: (212) 632-5514
                      Telecopy:  (212) 307-3314



or to such other  address as each party may designate for itself by like notice.
Failure or delay in delivering copies of any notice, demand,  request,  consent,
approval,  declaration or other communication to the persons designated above to
receive  copies shall not  adversely  affect the  effectiveness  of such notice,
demand, request, consent, approval, declaration or other communication.

         15.9 Waiver of Notices.  Unless  otherwise  expressly  provided herein,
each Borrower waives  presentment,  protest and notice of demand or dishonor and
protest as to any instrument, notice of intent to accelerate the Obligations and
notice of acceleration of the Obligations,  as well as any and all other notices
to which it might otherwise be entitled.  No notice to or demand on any Borrower
which the Agent or any Lender may elect to give shall  entitle such  Borrower to
any or further notice or demand in the same, similar or other circumstances.

         15.10 Binding Effect. The provisions of this Agreement shall be binding
upon and inure to the benefit of the respective representatives, successors, and
assigns of the parties hereto; provided, however, that no interest herein may be
assigned by any Borrower  without  prior  written  consent of the Agent and each
Lender. The rights and benefits of the Agent and the Lenders hereunder shall, if
such  Persons  so  agree,  inure to any  party  acquiring  any  interest  in the
Obligations or any part thereof.

         15.11        Indemnity of the Agent and the Lenders by the Borrower.

                      (a)     Each Borrower jointly and severally agrees to
defend,  indemnify and hold the Agent-Related  Persons, and each Lender and each
of  its  respective  officers,   directors,   employees,   counsel,  agents  and
attorneys-in-fact  (each, an "Indemnified Person") harmless from and against any
and  all  liabilities,   obligations,   losses,  damages,  penalties,   actions,
judgments, suits, costs, charges, expenses and disbursements (including Attorney


<PAGE>



Costs) of any kind or nature  whatsoever which may at any time (including at any
time  following  repayment  of the Loans  and the  termination,  resignation  or
replacement of the Agent or  replacement of any Lender) be imposed on,  incurred
by or asserted  against any such Person in any way relating to or arising out of
this  Agreement  or any  document  contemplated  by or referred  to herein,  the
issuance  of any  Letter of Credit or the  provision  of any  credit  support or
enhancement  in  connection  therewith,  any  ACH  Transaction,   or  any  other
transactions  contemplated  hereby,  or any action taken, or omitted by any such
Person under or in connection with any of the foregoing,  including with respect
to  any  investigation,  litigation  or  proceeding  (including  any  bankruptcy
proceeding or appellate proceeding) related to or arising out of this Agreement,
any  other  Loan  Document,  or the  Loans or the use of the  proceeds  thereof,
whether or not any  Indemnified  Person is a party  thereto (all the  foregoing,
collectively,  the "Indemnified Liabilities");  provided, that no Borrower shall
have  any  obligation  hereunder  to any  Indemnified  Person  with  respect  to
Indemnified  Liabilities  resulting  solely from the gross negligence or willful
misconduct  of such  Indemnified  Person.  The  agreements in this Section shall
survive payment of all other Obligations.

                      (b)     Each Borrower jointly and severally agrees to
indemnify,  defend and hold  harmless the Agent and the Lenders from any loss or
liability   directly  or  indirectly   arising  out  of  the  use,   generation,
manufacture,   production,  storage,  release,  threatened  release,  discharge,
disposal or presence of a hazardous substance. This indemnity will apply whether
the  hazardous  substance  is on,  under or about  any  Borrower's  property  or
operations or property leased to any Borrower. The indemnity includes but is not
limited to attorneys' fees. The indemnity  extends to the Agent and the Lenders,
their parent,  subsidiaries  and all of their  directors,  officers,  employees,
agents,  successors,  attorneys and assigns.  "Hazardous  substances"  means any
substance,  material  or waste that is or becomes  designated  or  regulated  as
"toxic," "hazardous,"  "pollutant," or "contaminant" or a similar designation or
regulation  under any  federal,  state or local law  (whether  under common law,
statute,  regulation or otherwise) or judicial or administrative  interpretation
of such,  including without limitation  petroleum or natural gas. This indemnity
will survive repayment of all other Obligations.

         15.12 Restrictions on Actions by Lenders; Sharing of Payments. (a) Each
of the  Lenders  agrees that it shall not,  without  the express  consent of all
Lenders, and that it shall, to the extent it is lawfully entitled to do so, upon
the request of all Lenders,  set off against the Obligations,  any amounts owing
by such Lender to any  Borrower or any accounts of any Borrower now or hereafter
maintained  with such Lender.  Each of the Lenders  further agrees that it shall
not, unless  specifically  requested to do so by the Agent,  take or cause to be
taken any action to enforce  its rights  under  this  Agreement  or against  any
Borrower,  including,  without  limitation,  the  commencement  of any  legal or
equitable  proceedings,  to  foreclose  any Lien on, or  otherwise  enforce  any
security interest in, any of the Collateral.



<PAGE>



                      (b)     If at any time or times any Lender shall receive
(i) by payment, foreclosure,  setoff or otherwise, any proceeds of Collateral or
any  payments  with  respect to the  Obligations  of any Borrower to such Lender
arising  under,  or relating  to, this  Agreement  or the other Loan  Documents,
except for any such proceeds or payments  received by such Lender from the Agent
pursuant  to the terms of this  Agreement,  or (ii)  payments  from the Agent in
excess of such Lender's ratable portion of all such  distributions by the Agent,
such Lender  shall  promptly (1) turn the same over to the Agent,  in kind,  and
with such endorsements as may be required to negotiate the same to the Agent, or
in same day funds, as applicable,  for the account of all of the Lenders and for
application to the Obligations in accordance  with the applicable  provisions of
this  Agreement,  or (2) purchase,  without  recourse or warranty,  an undivided
interest and  participation in the Obligations owed to the other Lenders so that
such excess payment  received  shall be applied  ratably as among the Lenders in
accordance with their Pro Rata Shares; provided, however, that if all or part of
such excess  payment  received by the purchasing  party is thereafter  recovered
from it,  those  purchases  of  participation  shall be rescinded in whole or in
part,  as  applicable,  and the  applicable  portion of the purchase  price paid
therefor shall be returned to such purchasing party, but without interest except
to the  extent  that  such  purchasing  party is  required  to pay  interest  in
connection with the recovery of the excess payment.

         15.13        Field Audit and Examination Reports; Disclaimer by
Lenders.  By signing this Agreement, each Lender:

                      (a)     is deemed to have requested that the Agent furnish
such Lender,  promptly after it becomes available, a copy of each field audit or
examination report (each a "Report" and collectively, "Reports") prepared by the
Agent;

                      (b)     expressly agrees and acknowledges that neither
BABC nor the Agent (i) makes any  representation  or warranty as to the accuracy
of any  Report,  or (ii) shall be liable for any  information  contained  in any
Report;

                      (c)     expressly agrees and acknowledges that the Reports
are not  comprehensive  audits or  examinations,  that the Agent or other  party
performing  any audit or  examination  will  inspect only  specific  information
regarding the Borrowers and will rely  significantly  upon the Borrowers'  books
and records, as well as on representations of the Borrowers' personnel;

                      (d)     agrees to keep all Reports confidential and
strictly for its internal use, and not to distribute except to its
participants, or use any Report in any other manner; and

                      (e)     without limiting the generality of any other
indemnification  provision contained in this Agreement,  agrees: (i) to hold the
Agent and any such other Lender  preparing a Report harmless from any action the
indemnifying  Lender may take or conclusion the indemnifying Lender may reach or
draw from any Report in connection with any loans or other credit accommodations
that the indemnifying Lender has made or may make to any Borrower,


<PAGE>



or the indemnifying  Lender's  participation  in, or the  indemnifying  Lender's
purchase of, a loan or loans of any Borrower;  and (ii) to pay and protect,  and
indemnify,  defend  and hold the Agent and any such  other  Lender  preparing  a
Report harmless from and against,  the claims,  actions,  proceedings,  damages,
costs,  expenses and other  amounts  (including,  without  limitation,  attorney
costs) incurred by the Agent and any such other Lender preparing a Report as the
direct or indirect  result of any third  parties who might obtain all or part of
any Report through the indemnifying Lender.

         15.14  Relation  Among  Lenders.   The  Lenders  are  not  partners  or
co-venturers,  and no Lender  shall be liable for the acts or  omissions  of, or
(except as otherwise  set forth herein in case of the Agent)  authorized  to act
for, any other Lender.

         15.15  Limitation of  Liability.  No claim may be made by any Borrower,
any Lender or other Person  against the Agent,  any Lender,  or the  affiliates,
directors,  officers,  employees,  or  agents  of any of them  for any  special,
indirect,  consequential  or punitive damages in respect of any claim for breach
of contract or any other  theory of  liability  arising out of or related to the
transactions  contemplated by this Agreement or any other Loan Document,  or any
act, omission or event occurring in connection therewith,  and each Borrower and
each Lender hereby  waive,  release and agree not to sue upon any claim for such
damages, whether or not accrued and whether or not know or suspected to exist in
its favor.

         15.16 Final Agreement.  This Agreement and the other Loan Documents are
intended by each Borrower,  the Agent and the Lenders to be the final, complete,
and  exclusive   expression  of  the  agreement  between  them.  This  Agreement
supersedes any and all prior oral or written agreements  relating to the subject
matter hereof. No modification, rescission, waiver, release, or amendment of any
provision of this Agreement or any other Loan Document shall be made,  except by
a written  agreement  signed by each Borrower and a duly  authorized  officer of
each of the Agent and the requisite Lenders.

         15.17  Counterparts.  This  Agreement  may be executed in any number of
counterparts,  and  by  the  Agent,  any  Lender  or any  Borrower  in  separate
counterparts,  each of  which  shall  be an  original,  but all of  which  shall
together constitute one and the same agreement.

         15.18  Captions.  The  captions  contained  in this  Agreement  are for
convenience of reference only, are without substantive meaning and should not be
construed to modify, enlarge, or restrict any provision.

         15.19  Signatures  by  Telecopy.  The parties  hereto agree that signed
faxed  documents  delivered  in  connection  with  this  Agreement  and the Loan
Documents  (other than the Term Notes and Letters of Credit)  shall be deemed to
be of the same force and effect as an original of a manually signed copy.

         15.20        Joint and Several Liability.  The liability of
Borrowers for all of the Obligations shall be joint and several


<PAGE>



regardless of which  Borrower  actually  receives  loans or other  extensions of
credit  hereunder  or the amount of such loans  received  or the manner in which
Lender accounts for such loans or other extensions of credit or on its books and
records.  Each  Borrower's  Obligations  with respect to Term Loans or Revolving
Loans made to it or Letters of Credit issued for its account,  and related fees,
costs and expenses,  and each Borrower's  Obligations arising as a result of the
joint and several  liability  of any  Borrower  hereunder,  with respect to Term
Loans or  Revolving  Loans made to any other  Borrower  hereunder  or Letters of
Credit issued for the account of any other Borrower hereunder, together with the
related fees,  costs and expenses,  shall be separate and distinct  obligations,
all of which are primary obligations of each Borrower.

         Each  Borrower's  Obligations  arising  as a result  of the  joint  and
several  liability  of any  Borrower  hereunder  with  respect to loans or other
extensions of credit made to any other Borrower  hereunder shall, to the fullest
extent  permitted by law, be  unconditional  irrespective of (i) the validity of
enforceability,  avoidance or  subordination  of the  Obligations  of such other
Borrower or of any promissory note or other document  evidencing all of any part
of the  Obligations of such other  Borrower,  (ii) the absence of any attempt to
collect the Obligations  from any other Borrower,  any other  guarantor,  or any
other security therefor, or the absence of any other action to enforce the same,
(iii) the waiver, consent, extension,  forbearance or granting of any indulgence
by the Lenders with respect to any provision of any  instrument  evidencing  the
Obligations of any other Borrower,  or any part thereof,  or any other agreement
now or hereafter  executed by any other  Borrower and  delivered to the Lenders,
(iv) the  failure by the Agent to take any steps to  perfect  and  maintain  its
security  interest in, or to preserve its rights to, any security or  collateral
for the Obligations of any other  Borrower,  (v) the Lenders'  election,  in any
proceeding  instituted  under the Bankruptcy Code, of the application of Section
1111(b)(2)  of the  Bankruptcy  Code,  (vi) any borrowing or grant of a security
interest by any other Borrower, as debtor-in-possession under Section 364 of the
Bankruptcy  Code,  (vii) the  disallowance of all or any portion of the Lenders'
claim(s) for repayment of the  Obligations  of any other  Borrower under Section
502 of the  Bankruptcy  Code,  or (viii)  any  other  circumstance  which  might
constitute  a legal or  equitable  discharge or defense of a guarantor or of any
other Borrower.

         Each  Borrower  hereby  irrevocably  agrees  that it will not bring any
"claims" (as defined in Section 101(5) of the Bankruptcy Code) against any other
Borrower to which such Borrower is or would at any time be otherwise entitled by
virtue  of its  obligations  under  this  Agreement  or  under  any of the  Loan
Documents,  including,  without  limitation,  any right of subrogation  (whether
contractual,   under  Section  509  of  the   Bankruptcy   Code  or  otherwise),
reimbursement,  contribution,  exoneration  or other  similar right against such
other Borrower, until such time as all of the Obligations have been satisfied in
full and this Agreement shall have terminated in accordance with its terms.

         Upon any Event of Default, the Agent may, at its sole election, proceed
directly and at once, without notice, against any


<PAGE>



Borrower  to  collect  and  recover  the  full  amount,  or any  portion  of the
Obligations,  without first  proceeding  against any other Borrower or any other
Person, or against any security or collateral for the Obligations. Each Borrower
consents  and agrees that  neither  the Agent nor any Lender  shall be under any
obligation  to  marshall  any assets in favor of such  Borrower or against or in
payment of any or all of the Obligations.

         15.21 Waiver of Default.  Subject to the satisfaction of the conditions
precedent to the  effectiveness  of this  Agreement set forth in Article 10, the
Lenders  hereby  waive any and all Events of  Default  under the  Original  Loan
Agreement arising solely by reason of the establishment by Forstmann of FAI as a
wholly-owned  subsidiary and the acquisition by FAI of substantially  all of the
assets of Arenzano and BBC.




<PAGE>



         IN WITNESS WHEREOF, the parties have entered into this Agreement on the
date first above written.

                            Borrowers
                            ---------
                            FORSTMANN & COMPANY, INC.


                             By:   /s/Rodney J. Peckham
                                ------------------------ 
                             Name: Rodney J. Peckham
                             Title: EVP & CFO


                             FORSTMANN APPAREL, INC.


                             By:      /s/ Rodney J. Peckham
                                ----------------------------
                             Name: Rodney J. Peckham
                             Title: EVP & CFO



                             Agent

                             BANKAMERICA BUSINESS CREDIT, INC.



                             By:      /s/Louis Alexander
                                -------------------------
                             Name: Louis Alexander
                             Title: VP



<PAGE>





                                     Lenders

Revolving Credit                    BANKAMERICA BUSINESS CREDIT,
Commitment:  $33,898,000.00         INC., as a Lender

Term Loan
Commitment:  $12,552,000.00         By:      /s/Louis Alexander
                                       --------------------------
                                    Name: Louis Alexander
                                    Title: VP

                                    40 East 52nd Street
                                    New York, New York 10022
                                    Attention: Division Manager
                                    Telephone: (212) 836-5100
                                    Telecopy:  (212) 836-5167


Revolving Credit                    AT&T COMMERCIAL FINANCE
Commitment:   $7,301,500.00         CORPORATION, as a Lender

Term Loan
Commitment:   $2,698,500.00         By:      /s/ Paul Seindenwar
                                       --------------------------
                                    Name: Paul Seidenwar
                                    Title: Assistant Vice
                                    President

                                    2 Gatehall Drive
                                    Parsipanny, NJ 07054
                                    Attention: Managing Director
                                    Asset Based Lending
                                    Telephone: (201) 606-4874
                                    Telecopy:  (201) 606-4776


Revolving Credit                    THE CIT GROUP/COMMERCIAL
Commitment:  $18,249,500.00         SERVICES, INC., as a Lender

Term Loan
Commitment:   $6,750,500.00         By:      /s/Jeffrey Heller
                                       -------------------------
                                    Name: Jeffrey Heller
                                    Title: Vice President

                                    1211 Avenue of the Americas,
                                    12th Floor
                                    New York, New York 10036
                                    Attention: Lori Kudish
                                    Telephone: (212) 382-7192
                                    Telecopy:  (212) 382-6814


Revolving Credit                    IBJ SCHRODER BUSINESS CREDIT
Commitment:   $7,301,500.00         CORPORATION, as a Lender

Term Loan
Commitment:   $2,698,500.00         By:      /s/James M. Steffy
                                       --------------------------
                                    Name: James M. Steffy
                                    Title: Vice President

                                    One State Street, 6th Floor
                                    New York, New York 10004
                                    Attention: James M. Steffy,
                                    Vice President
                                    Telephone: (212) 858-2094
                                    Telecopy:  (212) 858-2151


Revolving Credit                    LA SALLE BUSINESS CREDIT,
Commitment:  $10,948,000.00         INC., as a Lender

Term Loan
Commitment:   $4,052,000.00         By:      /s/Cyril Prince
                                       -------------------------
                                    Name: Cyril Prince
                                    Title: Vice President

                                    477 Madison Avenue, 20th Floor
                                    New York, New York 10022
                                    Attention: Credit Manager,
                                    Vice President
                                    Telephone:(212) 858-2188
                                    Telecopy: (212) 858-2151


Revolving Credit                    PNC BANK, NATIONAL
Commitment:   $7,301,500.00         ASSOCIATION, as a Lender

Term Loan
Commitment:   $2,698,500.00         By:      /s/Peter H. Schryver
                                       ----------------------------
                                    Name: Peter H. Schryver
                                    Title: Vice President

                                    c/o PNC Business Credit
                                    Two Tower Center
                                    8th Floor
                                    East Brunswick, NJ 08816
                                    Attention: William P. Gennario
                                    Telephone: (908) 220-4314
                                    Telecopy:  (908) 220-4399


<PAGE>



                                    EXHIBIT A

                                FORM OF TERM NOTE



<PAGE>



                                    EXHIBIT A
                             FORM OF TERM LOAN NOTE

                            FORSTMANN & COMPANY, INC.
                             FORSTMANN APPAREL, INC.
                                 TERM LOAN NOTE


                                               --------, -----
                                               New York, New York


                      FOR VALUE RECEIVED, FORSTMANN & COMPANY, INC., a
Georgia  corporation  and  FORSTMANN  APPAREL,  INC.,  a  New  York  corporation
(collectively  the "Borrower"),  hereby  unconditionally  promises to pay to the
order  of   ____________________   (the   "Lender")  the  principal   amount  of
_______________________________ DOLLARS ($________) or, if less, the outstanding
principal  amount owed by the  Borrower  to the Lender with  respect to the Term
Loan made by the Lender to the  Borrower  under the Loan  Agreement  (as defined
below).  Unless otherwise  required to be paid sooner pursuant to the provisions
of either Sections 4.5 or 12.1 of the Loan Agreement, the principal indebtedness
evidenced hereby shall be payable in thirty six (36) consecutive installments as
follows:  (i) each of the first  thirty five (35)  installments  shall be in the
amount of $__________  and shall be payable  monthly on the last Business Day of
each month commencing on _________, ____ and (ii) the final installment shall be
made on _______,  ____ and shall be in the amount  necessary  to pay in full the
unpaid principal amount hereof and all accrued interest thereon.

                      The Borrower also promises to pay interest on the
unpaid principal amount borrowed  hereunder from the date advanced until paid at
the rate and at the times  which  shall be  determined  in  accordance  with the
provisions of the Amended and Restated Loan and Security  Agreement  dated as of
September 14, 1998 (as amended,  modified or otherwise  supplemented,  the "Loan
Agreement"),   among  the  Borrower,  Forstmann  Apparel,  Inc.,  the  financial
institutions  from time to time parties thereto named as Lenders (the "Lenders")
and  BankAmerica  Business  Credit,  Inc.,  as agent  for the  Lenders  (in such
capacity,  the  "Agent").  Terms  defined in the Loan  Agreement  not  otherwise
defined herein are used herein with the meanings so defined.

                      This Term Note is one of the Term Notes issued pursuant
to, and entitled to the benefits of, the Loan  Agreement,  to which reference is
hereby made for a more  complete  statement  of the terms and  conditions  under
which the Term Loan evidenced hereby was made and is to be repaid.

                      All payments of principal and interest in respect of
this Term Note shall be made to the Agent at such account and place in New York,
New York as the Agent may from time to time designate in writing to the Borrower
or at such  other  location  as the  Agent may from  time to time  designate  in
writing to the  Borrower,  in lawful  money of the  United  States of America in
same-day funds.



<PAGE>



                      This Term Note may be prepaid at the option of Borrower
as provided in Section 4.4 of the Loan Agreement and must be prepaid as provided
in Section 4.5 of the Loan Agreement.

                      THE LOAN AGREEMENT AND THIS TERM NOTE SHALL BE GOVERNED
BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF
THE STATE OF NEW YORK.

                      Upon the occurrence of any one or more of certain
Events of Default,  the unpaid balance of the principal amount of this Term Note
may  become,  and upon the  occurrence  and  continuation  of any one or more of
certain other Events of Default,  such unpaid balance may be declared to be, due
and payable in the manner,  upon the conditions and with the effect  provided in
the Loan Agreement.

                      No reference herein to the Loan Agreement and no
provision  of this  Term  Note,  the Loan  Agreement  or any of the  other  Loan
Documents  shall  alter or  impair  the  obligation  of the  Borrower,  which is
absolute and  unconditional,  to pay the  principal of and interest on this Term
Note  at the  place,  at the  respective  times,  and  in  the  currency  herein
prescribed.

                      The Borrower promises to pay all costs and expenses,
including  reasonable  attorneys'  fees  and  disbursements,   incurred  in  the
collection  and  enforcement  of this  Term  Note or any  appeal  of a  judgment
rendered  thereon all in accordance  with the provisions of the Loan  Agreement.
The Borrower hereby waives diligence, presentment, protest, demand and notice of
every kind except as required  pursuant to the Loan  Agreement and waives to the
full extent  permitted by the law the right to plead any statute of  limitations
as a defense to any demands hereunder.

                      IN WITNESS WHEREOF, the Borrower has caused this Term
Note to be executed and delivered by its duly authorized  officer, as of the day
and year and at the place first above written.


                                   FORSTMANN & COMPANY, INC.


                                   By:
                                           Name:
                                           Title:

                                   FORSTMANN APPAREL, INC.


                                   By:     
                                           Name:
                                           Title:


<PAGE>



                               Schedule A to Note

                BASE RATE LOANS AND REPAYMENT OF BASE RATE LOANS



                                     <PAGE>



                               Schedule B to Note

               LIBOR RATE LOANS AND REPAYMENT OF LIBOR RATE LOANS



                                     <PAGE>



                                    EXHIBIT B

                       FORM OF BORROWING BASE CERTIFICATE


<PAGE>



EXHIBIT B

FORM OF BORROWING BASE CERTIFICATE

FORSTMANN & COMPANY, INC.

Borrowing Base Certificate for the week ended ______________. Page 1 of 5.



<PAGE>




           ACCOUNTS RECEIVABLE:
           Gross Accounts Receivable
     
        a  Less: Dated Accounts >245 days from invoice date or 30 days past
           due
        b  All other  Accounts > 120 days from invoice date or 60 days past
           due
        c  Bankrupt/Disputed accounts
        d  Cross Aging 50%
        e  Foreign Accounts not covered by L/C's
        f  Affiliate/Subsidiary Accounts
        g  Contra Accounts
        h  Government Accounts > $4.0MM
        I  Accounts in excess of 15% of total Gross A/R balance (Kellwood
           30%)
        j  Credit balances in (a) and (b)
        k  Chargebacks net of ineligibles in (a) and (b)
        l  Service Charges net of ineligibles in (a) and (b)
        m  Other
        n  Other
        o  Other
           Total Ineligible A/R
           Eligible A/R
           Available @ 85%
           Less:  Available bill & hold > $15.0MM (calculated using same method
           as above)
           Total Available Accounts Receivable


           ACCOUNTS RECEIVABLE SUMMARY
                Total Dating Accounts  Receivable  included in above total Total
                Bill & Hold Accounts Receivable included in above total

           ACCOUNTS RECEIVABLE ROLLFORWARD
                Gross Accounts Receivable prior borrowing base certificate
                Plus:  Gross billings current period
                Less:  Cash collections current period
                Less:  Credits current period
                Less:  Other adjustments current period
                Total Gross Accounts Receivable current period (agrees to amount
                in (a)

<PAGE>



                                          FORSTMANN & COMPANY, INC.
                                                      .
                  Borrowing Base Certificate for the week ended  ______________.
Page 2 of 5.


           INVENTORY   (FIFO Basis)
           Gross Raw Materials
           Less: Dyes and Chemicals
                  Material at Outside Processors
                  Supplies
                  Market Reserve
                  Other
                  Total Ineligibles
           Total Eligible
           Available @ 65%

           Gross Work in Process (Yarn)
           Less: Work in Process (Yarn) >$12.0MM
                  Material at Outside Processors
                  Supplies
                  Market Reserve
                  Other
                  Total Ineligibles
           Total Eligible
           Available @ 50%

           Gross Work in Process (Greige Goods)
           Less: Work in Process (Greige Goods) > $15.0MM
                  Material at Outside Processors
                  Market Reserve
                  Other
                  Other
                  Total Ineligibles
           Total Eligible
           Available @ 65%

           Gross Finished Goods
           Less: Finished Goods > $12.0MM
                  Material at Outside Processors
                  Samples
                  Market Reserve
                  Other
                  Total Ineligibles
           Total Eligible
           Available @ 65%

           Total Eligible Letter of Credit Inventory
           Available @  55%


           Total Available Inventory as calculated above
           Inventory Cap: $30.0MM less Forstmann Apparel Available Inventory
           Total Available Inventory
           Total Available Collateral (accounts plus inventory plus letter 
               of credit)
           Less :  Availability Reserve:
           Total Net Availability

THE UNDERSIGNED  REPRESENTS AND WARRANTS THAT THE INFORMATION SET FORTH ABOVE IS
TRUE AND COMPLETE.  THE UNDERSIGNED GRANTS A SECURITY INTEREST IN THE COLLATERAL
REFLECTED  ABOVE TO BANK  AMERICA  BUSINESS  CREDIT,  INC.  AND  REPRESENTS  AND
WARRANTS THAT SAID


<PAGE>



COLLATERAL COMPLIES WITH REPRESENTATIONS,  WARRANTIES AND COVENANTS CONTAINED IN
THE LOAN AND SECURITY  AGREEMENT  BETWEEN BANK AMERICA BUSINESS CREDIT,  INC AND
THE UNDERSIGNED.

AUTHORIZED SIGNATURE & DATE:       _____________________________  ____________

TITLE:                             _____________________________


<PAGE>



                                        FORSTMANN & COMPANY, INC.
                                         Forstmann Apparel, Inc.

                Borrowing Base  Certificate  for the week ended  ______________.
Page 3 of 5.


           ACCOUNTS RECEIVABLE:
           Gross Accounts Receivable
           Less: Accounts >  90 days from invoice date or >60 days past due
                  Chargebacks/debit memos in current
                  Credit balances in past due
                  Bankrupt/Disputed accounts
                  Cross Aging 50%
                  Foreign Accounts not covered by L/C's
                  Affiliate/Subsidiary Accounts
                  Contra Accounts
                  Government Accounts
                  Concentration Cap
                  Other
                  Total Ineligible A/R
           Eligible A/R
           Available @ 80%

           ACCOUNTS RECEIVABLE ROLLFORWARD
                Gross Accounts Receivable prior borrowing base certificate
                Plus:  Gross billings current period
                Less:  Cash collections current period
                Less:  Credits current period
                Less:  Other adjustments current period
                Total Gross Accounts Receivable current period

<PAGE>

                                        FORSTMANN & COMPANY, INC.
                                         Forstmann Apparel, Inc.

                Borrowing Base  Certificate  for the week ended  ______________.
Page 4 of 5.





           INVENTORY   (FIFO Basis)
           Gross Raw Materials
           Less:  Material at Outside Processors
                  Trim Inventory
                  Inventory > one season
                  Other
                  Total Ineligibles
           Total Eligible
           Available @ 50%

           Gross Work in Process (all ineligible)

           Gross Finished Goods
           Less: Material at Outside Processors
                  Samples
                  Inventory from previous season
                  Defective/returned/ rework inventory
                  Other
                  Total Ineligibles
           Total Eligible
           Available @ 65%
           Total Eligible Letter of Credit Inventory: Raw materials
           Available @ 45%
           Total Eligible Letter of Credit Inventory: Finished Goods
           Available @ 55%
           Total Available Inventory as calculated above
           Inventory Cap                                                 $4.0MM
           Total Available Inventory
           Total Available Collateral (accounts plus inventory plus letter 
              of credit)








THE UNDERSIGNED  REPRESENTS AND WARRANTS THAT THE INFORMATION SET FORTH ABOVE IS
TRUE AND COMPLETE.  THE UNDERSIGNED GRANTS A SECURITY INTEREST IN THE COLLATERAL
REFLECTED  ABOVE TO BANK  AMERICA  BUSINESS  CREDIT,  INC.  AND  REPRESENTS  AND
WARRANTS THAT SAID  COLLATERAL  COMPLIES WITH  REPRESENTATIONS,  WARRANTIES  AND
COVENANTS  CONTAINED  IN THE LOAN AND  SECURITY  AGREEMENT  BETWEEN BANK AMERICA
BUSINESS CREDIT, INC AND THE UNDERSIGNED.

AUTHORIZED SIGNATURE & DATE:     _____________________________  ____________

TITLE:                           _____________________________


<PAGE>



                                        FORSTMANN & COMPANY, INC.

                Borrowing Base  Certificate  for the week ended  ______________.
Page 5 of 5.



Availability Summary


           Total Available Accounts Receivable: Forstmann Inc.
           Total Available Accounts Receivable: Forstmann Apparel, Inc.

           Total Available Inventory: Forstmann Inc.
           Total Available Inventory: Forstmann Apparel, Inc.
               Inventory Availability Cap                               $30.0MM
           Total Available Inventory
           Total Available Collateral (Accounts receivable plus Inventory)
Loan summary


           Forstmann Inc.
             Total direct borrowings
             Total merchandise letters of credit:
             Total standby letter of credit
               Total loan

           Forstmann Apparel, Inc.
             Total direct borrowings
             Total merchandise letters of credit:
             Total standby letter of credit
               Total loan  (sublimit: $12.0MM)

           Less :  Availability Reserve:
           Total Net Availability


THE UNDERSIGNED  REPRESENTS AND WARRANTS THAT THE INFORMATION SET FORTH ABOVE IS
TRUE AND COMPLETE.  THE UNDERSIGNED GRANTS A SECURITY INTEREST IN THE COLLATERAL
REFLECTED  ABOVE TO BANK  AMERICA  BUSINESS  CREDIT,  INC.  AND  REPRESENTS  AND
WARRANTS THAT SAID  COLLATERAL  COMPLIES WITH  REPRESENTATIONS,  WARRANTIES  AND
COVENANTS  CONTAINED  IN THE LOAN AND  SECURITY  AGREEMENT  BETWEEN BANK AMERICA
BUSINESS CREDIT, INC AND THE UNDERSIGNED.

AUTHORIZED SIGNATURE & DATE:    _____________________________  ____________

TITLE:                          _____________________________



<PAGE>



                                                 EXHIBIT C


                                         [Intentionally omitted.]



<PAGE>



                                                 EXHIBIT D

                                         LIST OF CLOSING DOCUMENTS


<PAGE>



FORSTMANN & COMPANY, INC.
                                          FORSTMANN APPAREL, INC.
                                            September 14, 1998

                                         LIST OF CLOSING DOCUMENTS



                                              As used below:

         Agent                      =        BankAmerica Business Credit, Inc.
         BABC

         AT&T                       =       AT&T Commercial Finance Corporation

         Borrowers                  =       Company and Subsidiary

         CIT                        =       The CIT Group/Commercial Services,
         Inc.

         Company                    =       Forstmann & Company, Inc.

         CV                         =       Christy & Viener

         GECC                       =       General Electric Capital
                                            Corporation

         IBJ                        =       IBJ Schroder Bank and Trust Company

         LBC                        =       La Salle Business Credit Inc.

         Lenders                    =       AT&T, BABC, CIT, IBJ, LBC and PNC

         Lockbox Bank               =       Citibank, N.A.

         PNC                        =       PNC Bank, National Association

         R&W                        =       Rogers & Wells

         SSN                        =       State Street Bank and Trust Company

         Subsidiary                 =       Forstmann Apparel, Inc.

         Title Company              =       Chicago Title Insurance Company



<PAGE>





                                                               Responsible Party

A.       Basic Documents
         1.       Amended and Restated Loan and Security              R&W
                  Agreement with Exhibits and Schedules
         Exhibits
         A -      Form of Term Note                                   R&W
                  Schedule A to Note - Base Rate Loans and
                  Repayment of Base Rate Loans
                  Schedule B to Note - LIBOR Rate Loans and
                  Repayment of LIBOR Rate Loans
         B -      Form of Borrowing Base Certificate            Agent/Borrowers
         C -      [Intentionally Omitted]
         D -      List of Closing Documents                           R&W
         E -      Form of Notice of Borrowing                         R&W
         F -      Form of Notice of Conversion/ Continuation          R&W
         G -      Form of Assignment and Acceptance                   R&W
                  Agreement
         H -      Form of Subsidiary Pledge Agreement                 R&W
                  (Accounts Receivable Notes)
         I -      Form of Company Pledge Agreement (Accounts          R&W
                  Receivable Notes)
         J -      Form of Company Pledge Agreement (Shares            R&W
                  of FAI)



<PAGE>



                                                               Responsible Party
                                                               Responsible Party
         Schedules

         1.1(a) -          Assigned Contracts                      Borrowers
         1.1(b) -          Locations of Eligible Inventory         Borrowers
         1.1(c) -          Permitted Liens                         Borrowers
         1.1(d) -          Restricted Investments                  Borrowers
         6.3 -    Facilities and Locations                         Borrowers
         6.7 -    Collateral Reports                                 Agent
         8.3 -    Jurisdictions of Qualification to do             Borrowers
                  Business
         8.4 -    Corporate Names                                  Borrowers
         8.5 -    Affiliates                                       Borrowers
         8.6(c) -          Balance Sheet                           Borrowers
         8.9 -    Debt                                             Borrowers
         8.12 -   Real Estate Owned or Leased                      Borrowers
         8.13 -   Proprietary Rights                               Borrowers
         8.14 -   Trade Names                                      Borrowers
         8.15 -   Litigation                                       Borrowers
         8.17 -   Labor Matters                                    Borrowers
         8.18 -            Environmental Law Matters               Borrowers
         8.21 -   ERISA Matters                                    Borrowers
         8.22 -   Taxes                                            Borrowers
         8.28 -            Material Agreements                     Borrowers
         8.29 -   Bank Accounts                                    Borrowers
         9.17 -   Management Compensation                          Borrowers


         2.       Trademark Security Agreement (Subsidiary)           R&W
                  EXHIBIT                                             R&W
                  A-       Assignment of Trademark and Service
                           Mark Registrations and Applications
         3.       Subsidiary Pledge Agreement (Accounts               R&W
                  Receivable)
         4.       Company Pledge Agreement (Accounts                  R&W
                  Receivable)
         5.       Company Pledge Agreement (Shares in                 R&W
                  Subsidiary)

B.       Supporting Documents
         6.       Certificate Regarding Accuracy of                 Company
                  Representations and Warranties (Company)
         7.       Certificate Regarding Absence of any              Company
                  Default or Event of Default (Company)
         8.       Secretary's Certificate (Company)                 Company
                  attaching Resolutions



<PAGE>



                                                               Responsible Party
                                                               Responsible Party
         9.       Certificate Regarding Accuracy of               Subsidiary
                  Representations and Warranties
                  (Subsidiary)
         10.      Certificate Regarding Absence of any            Subsidiary
                  Default or Event of Default (Subsidiary)
         11.      Good Standing Certificates for the              Subsidiary
                  Subsidiary

                  a.       [to be provided]
         12.      Certificates of Incorporation and of            Subsidiary
                  Qualification to Do Business (Subsidiary)

                  a.       [to be provided]
         13.      Secretary's Certificate (Subsidiary) to         Subsidiary
                  which is attached:

                  a.       By-Laws
                  b.       Resolutions
                  c.       Certificate of Incumbency
C.       Legal Opinions
         14.      Opinion of C&V                                      C&V
D.       Security Matters
         15.      Results of lien searches                            R&W

                  Subsidiary:
                  a.       UCC1-financing statements filed in
                           the following jurisdictions:

                           Department of State, Florida Baldwin County,  Georgia
                           Chatham County,  Georgia Clay County,  Georgia Clerks
                           Cooperative  Authority,   Georgia  Jefferson  County,
                           Georgia Laurens County,  Georgia  Secretary of State,
                           New  Jersey  Department  of State,  New York New York
                           County, New York



<PAGE>



                                                               Responsible Party
                                                               Responsible Party
         16.      Financing statements (Subsidiary)                   R&W
                  a.       UCC1-financing statements filed in
                           the following jurisdictions:

                           Department of State, Florida
                           Laurens County, Georgia
                           Secretary of State, New Jersey
                           Department of State, New York
                           New York City Register, New York

         17.      Financing Statements (Company)                      R&W
                  a.       UCC-3 Amendments to financing
                           statements have been filed in the
                           following jurisdictions:

                           Laurens  County,  Georgia  Secretary  of  State,  New
                           Jersey Bergen County, New Jersey Department of State,
                           New York New York City  Register,  New York Secretary
                           of State, North Carolina Burke County, North Carolina
                           Chowan County,  North Carolina Davison County,  North
                           Carolina Edgecombe County, North Carolina
         18.      Warehouse receipts covering any portion of        Borrowers
                  the Collateral located in warehouses and
                  for which warehouse receipts are issued
         19.      Certificates of title covering any portion        Borrowers
                  of the Collateral for which certificates
                  of title have been issued
         20.      Landlord Waivers (Subsidiary)                     Subsidiary
F.       Miscellaneous
         21.      Evidence of insurance with standard                  R&W/
                  insurance endorsement lender's loss               Borrowers
                  payable clause (Agent form)
         22.      Certified copy of the Order of the                Borrowers
                  Bankruptcy Court Authorizing Sale and
                  Acquisition
         23.      Certified copy of the Bill of Sale for the        Borrowers
                  Acquisition
         24.      Governmental approvals and consents             Borrowers/C&V
         25.      Lockbox Agreement (Subsidiary) [or              Lockbox Bank
                  amendment]




<PAGE>

                                                                 EXHIBIT E

                               NOTICE OF BORROWING


                                            Date:  ____________, ____




To:      BankAmerica  Business  Credit,  Inc.  as Agent for the  Lenders who are
         parties to the Amended and Restated Loan and Security  Agreement  dated
         as of September  14, 1998 (as  extended,  renewed,  amended or restated
         from time to time, the "Loan and Security Agreement") among Forstmann &
         Company,  Inc.,  Forstmann  Apparel,  Inc.,  certain  Lenders which are
         signatories thereto and BankAmerica Business Credit, Inc., as Agent

Ladies and Gentlemen:

         The undersigned,  ___________________________  ("Forstmann"), on behalf
of the borrower identified in item 1 below (the "Borrower"),  refers to the Loan
and Security  Agreement,  the terms defined therein being used herein as therein
defined,  and hereby gives you notice  irrevocably  of the  Borrowing  specified
below:

         1.       The Borrower for the proposed Borrowing is

                  --------------------.

         2.       The Business Day of the proposed Borrowing is _________, ____.

         3.       The aggregate amount of the proposed Borrowing is ___________.

         4.       The Borrowing is to be comprised of $____________ of Base Rate
                  Loans and $____________ of LIBOR Rate Loans.

         5.       The duration of the Interest  Period for the LIBOR Rate Loans,
                  if any, included in the Borrowing shall be _____ months.

         The undersigned hereby certifies that the following statements are true
on the date  hereof,  and will be true on the  date of the  proposed  Borrowing,
before and after giving effect  thereto and to the  application  of the proceeds
therefrom:

         (a) The  representations  and warranties of each Borrower  contained in
the Loan and Security Agreement are true and correct in all material respects as
though  made on and as of such date other than such  representation  or warranty
which expressly relates to an earlier date;

         (b) No Default or Event of Default has occurred and is  continuing,  or
would result from such proposed Borrowing; and

         (c) The  proposed  Borrowing  will not  cause the  aggregate  principal
amount of all outstanding  Revolving Loans plus the aggregate  amount  available
for drawing under all outstanding  Letters of Credit, to exceed the Availability
for the  Borrower or the  Aggregate  Availability  for all  Borrowers  (with the
Availability  for  this  purpose   calculated  as  if  the  Aggregate   Revolver
Outstandings were zero) or the combined Commitments of the Lenders.


<PAGE>




                       FORSTMANN & COMPANY, INC.


                       By: _______________________________

                       Name: _____________________________

                       Title: ____________________________



<PAGE>



                                                                 EXHIBIT F

                        NOTICE OF CONVERSION/CONTINUATION



Date:  ____________, ____


To:      BankAmerica  Business  Credit,  Inc.  as Agent for the  Lenders  to the
         Amended and Restated Loan and Security  Agreement dated as of September
         14, 1998 (as extended,  renewed, amended or restated from time to time,
         the "Loan and Security  Agreement")  among  Forstmann & Company,  Inc.,
         Forstmann Apparel,  Inc., certain Lenders which are signatories thereto
         and BankAmerica Business Credit, Inc., as Agent

Ladies and Gentlemen:

         The undersigned,  ___________________________  ("Forstmann"), on behalf
of all of the  Borrowers  under the Loan and Security  Agreement,  refers to the
Loan and Security  Agreement,  the terms  defined  therein  being used herein as
therein  defined,  and hereby gives you notice  irrevocably of the  [conversion]
[continuation] of the Loans specified herein, that:

1.       The Borrower of the Loans referenced herein is ________.

2. The Conversion/Continuation Date is ____________, ____.

3.       The aggregate amount of the Loans to be [converted] [continued] is
         $------------ .

4.       The Loans are to be [converted  into] [continued as] [LIBOR Rate] [Base
         Rate] Loans.

5.       The duration of the Interest  Period for the LIBOR Rate Loans  included
         in the [conversion] [continuation] shall be _________ months.

         The undersigned hereby certifies that the following statements are true
on the date  hereof,  and will be true on the  proposed  Conversion/Continuation
Date,  before and after  giving  effect  thereto and to the  application  of the
proceeds therefrom:

         (a) The  representations  and warranties of each Borrower  contained in
the Loan and Security Agreement are true and correct in all material respects as
though  made on and as of such date other than such  representation  or warranty
which expressly relates to an earlier date;

         (b) No Default or Event of Default has occurred and is  continuing,  or
would result from such proposed [conversion] [continuation]; and

         (c) The proposed  conversion-continuation  will not cause the aggregate
principal  amount of all outstanding  Revolving Loans [plus the aggregate amount
available  for drawing  under all  outstanding  Letters of Credit] to exceed the
Aggregate  Availability  or the  Availability  of the  Borrower or the  combined
Commitments of the Lenders.

                                       FORSTMANN & COMPANY, INC.


<PAGE>





                                       By: __________________________

                                       Name: ________________________

                                       Title: _______________________



<PAGE>



                                                                 EXHIBIT G


                   FORM OF ASSIGNMENT AND ACCEPTANCE AGREEMENT


         This  ASSIGNMENT  AND  ACCEPTANCE   AGREEMENT  (this   "Assignment  and
Acceptance") dated as of __________,  _____ is made between  ___________________
(the "Assignor") and _________________ (the "Assignee").


                                    RECITALS

         WHEREAS,  the  Assignor is party to that  certain  Amended and Restated
Loan and Security Agreement dated as of September 14, 1998 (as amended,  amended
and restated,  modified,  supplemented or renewed, the "Credit Agreement") among
Forstmann  &  Company,  Inc.,  a Georgia  corporation  ("Forstmann"),  Forstmann
Apparel,   Inc.,  a  New  York  corporation  ("FAI")  (each  of  the  foregoing,
individually  a "Borrower"  and,  collectively,  the  "Borrowers"),  the several
financial  institutions from time to time party thereto (including the Assignor,
the "Lenders"),  and BankAmerica Business Credit, Inc., as agent for the Lenders
(the "Agent"). Any terms defined in the Credit Agreement and not defined in this
Assignment and Acceptance are used herein as defined in the Credit Agreement;

         WHEREAS,  as provided  under the Credit  Agreement,  the  Assignor  has
committed  to  making  Revolving  Loans  and  maintaining  Term  Loans  to  (the
"Committed  Loans"),  and  purchasing  participations  in  Letters of Credit and
Credit Support  issued for the account of, the Borrowers in an aggregate  amount
not to exceed $__________ (the "Commitment");

         WHEREAS, the Assignor has made Committed Loans in the aggregate 
principal amount of $__________ to the Borrowers;

         WHEREAS,  [the  Assignor has acquired a  participation  in its pro rata
share of the Lenders'  liabilities under Letters of Credit and Credit Support in
an aggregate  principal amount of $____________ (the "Credit  Obligations")] [no
Letters of Credit or Credit Support is outstanding under the Credit  Agreement];
and

         WHEREAS,  the Assignor  wishes to assign to the Assignee  [part of the]
[all]  rights and  obligations  of the  Assignor  under the Credit  Agreement in
respect of its Commitment,  together with a corresponding portion of each of its
outstanding  Committed  Loans and  Credit  Obligations,  in an  amount  equal to
$__________  (the "Assigned  Amount") on the terms and subject to the conditions
set forth herein and the Assignee wishes to accept assignment of such rights and
to assume such  obligations  from the Assignor on such terms and subject to such
conditions;

         NOW,  THEREFORE,  in  consideration  of the  foregoing  and the  mutual
agreements contained herein, the parties hereto agree as follows:

         1.       Assignment and Acceptance.

         (a)  Subject  to the  terms  and  conditions  of  this  Assignment  and
Acceptance,  (i)  the  Assignor  hereby  sells,  transfers  and  assigns  to the
Assignee, and (ii) the Assignee hereby purchases, assumes and undertakes from


<PAGE>



the Assignor, without recourse and without representation or warranty (except as
provided in this  Assignment and  Acceptance)  __% (the  "Assignee's  Percentage
Share") of (A) the Commitment, the Committed Loans and the Credit Obligations of
the Assignor and (B) all related rights, benefits, obligations,  liabilities and
indemnities  of the Assignor under and in connection  with the Credit  Agreement
and the Loan Documents.

         (b) With effect on and after the Effective  Date (as defined in Section
5 hereof),  the Assignee shall be a party to the Credit Agreement and succeed to
all of the rights and be obligated to perform all of the obligations of a Lender
under   the   Credit   Agreement,    including   the   requirements   concerning
confidentiality  and the payment of  indemnification,  with a  Commitment  in an
amount equal to the Assigned Amount. The Assignee agrees that it will perform in
accordance  with their  terms all of the  obligations  which by the terms of the
Credit  Agreement  are  required to be  performed  by it as a Lender.  It is the
intent of the parties  hereto that the Commitment of the Assignor  shall,  as of
the Effective Date, be reduced by an amount equal to the Assigned Amount and the
Assignor shall relinquish its rights and be released from its obligations  under
the Credit  Agreement  to the extent such  obligations  have been assumed by the
Assignee;  provided, however, the Assignor shall not relinquish its rights under
Sections 15.7 and 15.11 of the Credit Agreement to the extent such rights relate
to the time prior to the Effective Date.

         (c) After giving  effect to the  assignment  and  assumption  set forth
herein, on the Effective Date the Assignee's Commitment will be $__________.

         (d) After giving  effect to the  assignment  and  assumption  set forth
herein, on the Effective Date the Assignor's Commitment will be $__________.

         2.       Payments.

         (a) As consideration for the sale, assignment and transfer contemplated
in Section 1 hereof,  the Assignee  shall pay to the  Assignor on the  Effective
Date in immediately available funds an amount equal to $__________, representing
the Assignee's Pro Rata Share of the principal amount of all Committed Loans.

         (b) The Assignee further agrees to pay to the Agent a processing fee in
the amount specified in Section 13.3 of the Credit Agreement.

         3.       Reallocation of Payments.

         Any interest,  fees and other  payments  accrued to the Effective  Date
with respect to the Commitment, and Committed Loans and Credit Obligations shall
be for the  account  of the  Assignor.  Any  interest,  fees and other  payments
accrued on and after the  Effective  Date with  respect to the  Assigned  Amount
shall be for the account of the Assignee.  Each of the Assignor and the Assignee
agrees  that it will hold in trust for the other  party any  interest,  fees and
other amounts which it may receive to which the other party is entitled pursuant
to the  preceding  sentence and pay to the other party any such amounts which it
may receive promptly upon receipt.

         4.       Independent Credit Decision.

         The Assignee (a) acknowledges that it has received a copy of the Credit
Agreement and the Schedules  and Exhibits  thereto,  together with copies of the
most recent Financial Statements of the Borrowers, and such other documents and


<PAGE>



information  as it has  deemed  appropriate  to make its own  credit  and  legal
analysis  and decision to enter into this  Assignment  and  Acceptance;  and (b)
agrees that it will,  independently and without reliance upon the Assignor,  the
Agent or any other  Lender and based on such  documents  and  information  as it
shall deem  appropriate  at the time,  continue to make its own credit and legal
decisions in taking or not taking action under the Credit Agreement.

         5.       Effective Date; Notices.

         (a) As between the Assignor and the Assignee,  the  effective  date for
this  Assignment  and  Acceptance  shall be  __________,  _____ (the  "Effective
Date");  provided that the following conditions precedent have been satisfied on
or before the Effective Date:

                        (i) this Assignment and Acceptance shall be executed and
delivered by the Assignor and the Assignee;

                       (ii) the Assignee shall pay to the Assignor all amounts 
due to the Assignor under this Assignment and Acceptance;
                      (iii) the Assignee shall have complied with [Section 14.10
of the Credit Agreement (if applicable) and] Section 7 hereof;

                        (iv) the consents of the Agent and the Borrowers 
required for an effective  assignment  of the  Assigned  Amount by the  Assignor
to the Assignee shall  have been duly  obtained  and shall be in full force and 
effect as of the Effective Date;

                        (v)the processing fee referred to in Section 2(b) hereof
and in Section 13.3(a) of the Credit Agreement shall have been paid to the 
Agent; and

         (b) Promptly following the execution of this Assignment and Acceptance,
the Assignor shall deliver to the Borrowers and the Agent for  acknowledgment by
the Agent, a Notice of Assignment in the form attached hereto as Schedule 1.


         [6.      Agent.  [INCLUDE ONLY IF ASSIGNOR IS AGENT]

         (a) The Assignee  hereby  appoints and  authorizes the Assignor to take
such action as agent on its behalf and to exercise  such powers under the Credit
Agreement as are delegated to the Agent by the Lenders  pursuant to the terms of
the Credit Agreement.

         (b) The  Assignee  shall  assume no duties or  obligations  held by the
Assignor in its capacity as Agent under the Credit Agreement.]

         7.       Withholding Tax.

         The Assignee (a) represents  and warrants to the Lender,  the Agent and
the Borrowers that under  applicable law and treaties no tax will be required to
be withheld by the Lender or the Agent with  respect to any  payments to be made
to the Assignee  hereunder,  (b) agrees to furnish (if it is organized under the
laws of any  jurisdiction  other than the United States or any State thereof) to
the Agent and the  Borrowers  prior to the time that the Agent or  Borrowers  is
required to make any payment of principal, interest or fees hereunder, duplicate
executed  originals of either U.S.  Internal  Revenue  Service Form 4224 or U.S.
Internal Revenue Service Form 1001 (wherein the Assignee claims


<PAGE>



entitlement  to the  benefits  of a tax  treaty  that  provides  for a  complete
exemption from U.S.  federal income  withholding tax on all payments  hereunder)
and  agrees  to  provide  new  Forms  4224 or 1001  upon the  expiration  of any
previously delivered form or comparable statements in accordance with applicable
U.S. law and regulations and amendments thereto,  duly executed and completed by
the  Assignee,  and (c)  agrees  to comply  with all  applicable  U.S.  laws and
regulations  with  regard  to such  withholding  tax  exemption,  provided,  for
avoidance of doubt,  that the  performance  by the  Assignee of its  obligations
under this Section 7 shall not excuse the Assignee from the  performance  of any
obligations  of the  Assignee,  as a Lender,  under  Section 14.10 of the Credit
Agreement.

         8.       Representations and Warranties.

         (a) The Assignor  represents  and warrants that (i) it is the legal and
beneficial  owner of the interest  being  assigned by it hereunder and that such
interest is free and clear of any Lien or other adverse  claim;  (ii) it is duly
organized and existing and it has the full power and authority to take,  and has
taken,  all  action  necessary  to  execute  and  deliver  this  Assignment  and
Acceptance  and any other  documents  required  or  permitted  to be executed or
delivered by it in connection with this Assignment and Acceptance and to fulfill
its obligations hereunder;  (iii) no notices to, or consents,  authorizations or
approvals of, any Person are required (other than any already given or obtained)
for  its  due  execution,  delivery  and  performance  of  this  Assignment  and
Acceptance, and apart from any agreements or undertakings or filings required by
the Credit  Agreement,  no further  action by, or notice to, or filing with, any
Person is required of it for such execution,  delivery or performance;  and (iv)
this  Assignment  and  Acceptance has been duly executed and delivered by it and
constitutes the legal, valid and binding obligation of the Assignor, enforceable
against  the  Assignor  in  accordance  with the terms  hereof,  subject,  as to
enforcement,  to bankruptcy,  insolvency,  moratorium,  reorganization and other
laws of general  application  relating to or affecting  creditors' rights and to
general equitable principles.

         (b) The  Assignor  makes no  representation  or warranty and assumes no
responsibility  with respect to any  statements,  warranties or  representations
made in or in connection with the Credit  Agreement or the execution,  legality,
validity,  enforceability,  genuineness,  sufficiency  or  value  of the  Credit
Agreement or any other instrument or document  furnished  pursuant thereto.  The
Assignor makes no  representation or warranty in connection with, and assumes no
responsibility with respect to, the solvency,  financial condition or statements
of the Borrowers,  or the performance or observance by the Borrowers,  of any of
their respective  obligations under the Credit Agreement or any other instrument
or document furnished in connection therewith.

         (c) The Assignee  represents and warrants that (i) it is duly organized
and existing and it has full power and  authority  to take,  and has taken,  all
action  necessary to execute and deliver this  Assignment and Acceptance and any
other  documents  required or  permitted  to be executed or  delivered  by it in
connection with this  Assignment and Acceptance,  and to fulfill its obligations
hereunder; (ii) no notices to, or consents,  authorizations or approvals of, any
Person are  required  (other than any  already  given or  obtained)  for its due
execution, delivery and performance of this Assignment and Acceptance; and apart
from any agreements or undertakings or filings required by the Credit Agreement,
no further action by, or notice to, or filing with, any Person is required of it
for such  execution,  delivery or  performance;  and (iii) this  Assignment  and
Acceptance has been duly executed and delivered by it and


<PAGE>



constitutes the legal, valid and binding obligation of the Assignee, enforceable
against  the  Assignee  in  accordance  with the terms  hereof,  subject,  as to
enforcement,  to bankruptcy,  insolvency,  moratorium,  reorganization and other
laws of general  application  relating to or affecting  creditors' rights and to
general equitable principles.

         9.       Further Assurances.

         The Assignor and the Assignee  each hereby agree to execute and deliver
such  other  instruments,  and take  such  other  action,  as  either  party may
reasonably  request in connection  with the  transactions  contemplated  by this
Assignment  and  Acceptance,  including  the  delivery  of any  notices or other
documents or instruments to the Borrowers or the Agent, which may be required in
connection with the assignment and assumption contemplated hereby.

         10.      Miscellaneous.

         (a) Any  amendment or waiver of any  provision of this  Assignment  and
Acceptance  shall be in writing and signed by the parties hereto.  No failure or
delay by either  party  hereto  in  exercising  any  right,  power or  privilege
hereunder  shall operate as a waiver thereof and any waiver of any breach of the
provisions of this Assignment and Acceptance  shall be without  prejudice to any
rights with respect to any other or further breach thereof.

         (b) All payments  made  hereunder  shall be made without any set-off or
counterclaim.

         (c) The  Assignor  and the  Assignee  shall  each pay its own costs and
expenses incurred in connection with the negotiation, preparation, execution and
performance of this Assignment and Acceptance.

         (d) This  Assignment  and  Acceptance  may be executed in any number of
counterparts  and all of such  counterparts  taken  together  shall be deemed to
constitute one and the same instrument.

         (e) THIS  ASSIGNMENT AND ACCEPTANCE  SHALL BE GOVERNED BY AND CONSTRUED
IN  ACCORDANCE  WITH THE LAW OF THE  STATE OF NEW  YORK.  The  Assignor  and the
Assignee each irrevocably submits to the non-exclusive jurisdiction of any State
or Federal court sitting in New York over any suit, action or proceeding arising
out of or relating to this Assignment and Acceptance and irrevocably agrees that
all claims in respect of such action or proceeding  may be heard and  determined
in such New York  State or Federal  court.  Each  party to this  Assignment  and
Acceptance hereby  irrevocably  waives, to the fullest extent it may effectively
do so, the defense of an inconvenient forum to the maintenance of such action or
proceeding.

         (f) THE ASSIGNOR AND THE ASSIGNEE  EACH HEREBY  KNOWINGLY,  VOLUNTARILY
AND  INTENTIONALLY  WAIVE ANY RIGHTS THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT
OF ANY LITIGATION BASED HEREON,  OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH
THIS ASSIGNMENT AND ACCEPTANCE,  THE CREDIT AGREEMENT, ANY RELATED DOCUMENTS AND
AGREEMENTS OR ANY COURSE OF CONDUCT,  COURSE OF DEALING,  OR STATEMENTS (WHETHER
ORAL OR WRITTEN).

         IN WITNESS  WHEREOF,  the Assignor  and the  Assignee  have caused this
Assignment and Acceptance to be executed and delivered by their duly  authorized
officers as of the date first above written.
                                            [ASSIGNOR]


<PAGE>




                                            By:
                                                     Name:
                                                     Title:


                                            By:
                                                     Name:
                                                     Title:

                                            Address:


                                            [ASSIGNEE]

                                            By:
                                                     Name:
                                                     Title:


                                            By:
                                                     Name:
                                                     Title:

                                            Address:


<PAGE>



                                PLEDGE AGREEMENT
                                     between
                             FORSTMANN APPAREL, INC.
                             a New York Corporation
                                       and
                       BANKAMERICA BUSINESS CREDIT, INC.,
                        a Delaware corporation, as Agent

                  This Pledge  Agreement  ("Agreement") is made and entered into
as of September 14, 1998,  by Forstmann  Apparel,  Inc., a New York  corporation
("Pledgor"), in favor of BankAmerica Business Credit, Inc., a Delaware
corporation, as Agent ("Pledgee").

Preliminary Statement.

                  A. Pledgor, Forstmann & Company, Inc. ("Forstmann"),  Pledgee,
in its capacity as agent, and the lenders from time to time parties thereto (the
"Lenders")  will enter into that certain  Amended and Restated Loan and Security
Agreement dated as of September 14, 1998 (as the same may be amended,  restated,
modified or supplemented from time to time, the "Loan  Agreement"),  pursuant to
which the Lenders will,  subject to the terms and  conditions  thereof,  advance
monies  and make  other  extensions  of credit  to the  Pledgor  and  Forstmann.
Capitalized  terms used and not defined herein shall have the meanings  assigned
to such terms in the Loan Agreement.

                  B. The Loan Agreement  permits the Pledgor to convert accounts
receivable into, among other things,  promissory notes and securities consisting
of capital  stock,  subject to the terms and  conditions  with  respect  thereto
contained in the Loan Agreement.

                  C. The Lenders  have  required as a condition  to the Lenders'
advancement of funds under the Loan  Agreement that Pledgor  execute and deliver
to Pledgee this Agreement.

                  NOW, THEREFORE,  for and in consideration of the foregoing and
of any financial  accommodations  or extensions  of credit  (including,  without
limitation, any loan or advance by renewal, refinancing or extension of the Loan
Agreement or otherwise) heretofore,  now or hereafter made to or for the benefit
of  Pledgor  by  Pledgee  or  any  Lender,  and  for  other  good  and  valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:

                  a.  Pledge.   Pledgor  hereby  pledges  and  grants   security
interests  to  Pledgee  in  all of  its  right,  title  and  interest  in and to
Restricted  Investments  arising from the  conversion of Accounts which are over
ninety (90) days past due and in any event are not  Eligible  Accounts  into (i)
securities  consisting  of capital  stock  (collectively,  the  "Stock")  of the
Account  Debtors,  accompanied  by stock  powers  duly  executed  in blank  (the
"Powers"); or (ii) securities consisting of promissory notes (collectively,  the
"Notes"),  of the Account Debtors and all payments  delivered in connection with
any  Notes,   accompanied  by  separate  instruments  of  endorsement  for  each
respective  Note, duly executed in blank in the form attached hereto as Schedule
1 and  made a part  hereof  (the  "Endorsements")  (said  Stock,  Notes,  Powers
Endorsements and proceeds  thereof,  together with the property and interests in
property  described in  Paragraphs  3, 6 and 7, being  hereinafter  collectively
referred to as the "Collateral"), as security for the payment and performance of
the Obligations. In the event Pledgor receives any Notes or Stock after the date


<PAGE>



hereof,  it shall promptly,  but in no event later than five Business Days after
receipt  thereof,  deliver  the  same,  accompanied  by  appropriate  Powers  or
Endorsements,  as applicable,  affixed thereto or thereon, to the Pledgee or its
nominee.  Pledgor  hereby  appoints  Pledgee as  Pledgor's  attorney-in-fact  to
arrange,  at Pledgee's option,  for the transfer,  upon or at any time after the
existence or occurrence of an Event of Default,  of the  Collateral on the books
of the  Account  Debtors  to the name of  Pledgee  or to the  name of  Pledgee's
nominee.

                  b. Voting Rights.  During the term of this  Agreement,  and so
long as there  shall not occur or exist an Event of Default  and Pledgee has not
delivered the written notice referred to in clause (b) below, Pledgor shall have
the right to vote the Stock on all  corporate  questions  for all  purposes  not
inconsistent  with the terms of this Agreement and the Loan  Agreement.  Pledgee
shall be entitled to exercise all voting  powers  pertaining  to the  Collateral
from and after (a) the  occurrence  and during the  continuation  of an Event of
Default and (b)  Pledgee's  delivery of written  notice to Pledgor of  Pledgee's
intention to exercise such voting powers.

                  c.  Dividends and  Distributions.  (a) During the term of this
Agreement,  and so long as there  shall not exist an Event of  Default,  Pledgor
shall be  entitled to receive and retain any and all  dividends,  principal  and
interest paid in respect of the  Collateral,  provided,  however,  that from and
after (a) the occurrence and during the  continuation of an Event of Default and
(b) Pledgee's delivery of written notice to Pledgor to do so any and all:

                  (i)  dividends and interest paid or payable other than in cash
         in respect of, and instruments and other property received,  receivable
         or  otherwise  distributed  in  respect  of, or in  exchange  for,  any
         Collateral;

             (ii) dividends and other  distributions  paid or payable in cash in
         respect  of any  Collateral  in  connection  with a  partial  or  total
         liquidation  or  dissolution  or in  connection  with  a  reduction  of
         capital, capital surplus or paid-in surplus; and

            (iii) cash  paid,  payable or  otherwise  distributed  in respect of
         principal of, or in redemption of, or in exchange for, any Collateral;

shall be, and shall be forthwith delivered to the Pledgee to hold as, Collateral
and shall,  if received by the Pledgor,  be received in trust for the benefit of
the Pledgee, be segregated from the other property or funds of the Pledgor,  and
be  forthwith  delivered  to the  Pledgee as  Collateral  in the same form as so
received (with any necessary endorsement).

                  (b) Pledgee shall execute and deliver (or cause to be executed
and  delivered)  to the Pledgor all such  proxies and other  instruments  as the
Pledgor  may  reasonably  request  for the  purpose of  enabling  the Pledgor to
exercise the voting and other  rights which it is entitled to exercise  pursuant
to Paragraph 2 above and to receive the dividends or interest  payments which it
is  authorized  to  receive  and retain  pursuant  to  subparagraph  (a) of this
Paragraph 3.

                  (c) Upon the occurrence and during the continuance of an Event
of Default all  dividends  and  interest  paid which are received by the Pledgor
contrary to the  provisions  of  subparagraph  (a) of this  Paragraph 3 shall be
received in trust for the benefit of the Pledgee, shall be segregated from other
funds of the  Pledgor  and  shall  be  forthwith  paid  over to the  Pledgee  as
Collateral in the same form as so received (with any necessary endorsement).


<PAGE>



                  d.   Representations  and  Covenants.   Pledgor  warrants  and
represents  that  Pledgor  is (or,  in the case of any and all  Notes  and Stock
delivered after the date hereof,  will be) the sole owner, free and clear of all
liens, claims security interests and encumbrances of the Notes and Stock and any
and all voting rights  associated  therewith and that Pledgor has full power and
authority  to enter into this  Agreement.  Pledgor  covenants  that Pledgor will
continue to be the sole  owner,  free and clear of all liens,  claims,  security
interests and  encumbrances  (except those held by Pledgee) of 100% of the Notes
and Stock and any and all voting rights associated therewith.

                  Pledgor  warrants and represents that (a) there are (or in the
case of any and all Collateral  delivered after the date hereof, it will use its
best efforts to ensure that such Collateral will have) no restrictions  upon the
voting  rights or upon the  transfer of any of the  Collateral  other than those
which may appear on the face of the certificates evidencing the Collateral,  (b)
there  are (or in the case of any and all  Collateral  delivered  after the date
hereof,  it will use its best efforts to ensure that such  Collateral will have)
no warrants or other rights or options issued or outstanding in connection  with
any of the Collateral, (c) Pledgor has (or in the case of any and all Collateral
delivered  after the date  hereof,  will use its best  efforts to ensure that it
will  have)  the  right to vote,  pledge  and grant a  security  interest  in or
otherwise  transfer such Collateral free of any liens,  claims or  encumbrances,
(d) to the best of Pledgor's  knowledge,  each Note has been (or, in the case of
Notes delivered after the date hereof,  will use its best efforts to ensure that
such Notes will be) duly  authorized,  issued and  delivered,  and is the legal,
valid, and binding obligation of the issuer thereof, (e) each payor party to any
of the Notes has (or in the case of any and all Notes  delivered  after the date
hereof,  Pledgor  will use its best efforts to ensure that each such payor party
will have) no right of set off or defense or  counterclaim  which would  inhibit
the collection of all amounts outstanding under such Note, and (f) the Powers or
Endorsements,  as the  case  may be,  are  (or,  in the  case of  Stock or Notes
delivered after the date hereof, the Powers or Endorsements, as the case may be,
will be) duly executed and give,  or will give, as the case may be,  Pledgee the
authority such Powers or Endorsements, as the case may be, purport to confer.

                  e. Subsequent Changes Affecting Collateral. Pledgor represents
to Pledgee that Pledgor has made Pledgor's own arrangements for keeping informed
of changes or potential  changes  affecting the Collateral  (including,  but not
limited  to,  rights to  convert,  rights to  subscribe,  payment of  dividends,
reorganization or other exchanges, tender offers and voting rights), and Pledgor
agrees that Pledgee  shall have no  responsibility  or liability  for  informing
Pledgor  of any such  changes or  potential  changes or for taking any action or
omitting to take any action with respect  thereto.  Pledgee may,  upon or at any
time after the  occurrence of an Event of Default,  and after written notice and
at  Pledgee's  option,  transfer or register the  Collateral  or any part of the
Collateral  into  Pledgee's  or  Pledgee's  nominee's  name with or without  any
indication that such  Collateral is subject to the security  interest under this
Agreement.

                  f. Stock  Adjustments.  In the event  that  during the term of
this  Agreement  any stock  dividend,  reclassification,  readjustment  or other
change is  declared  or made in the  capital  structure  of any  Account  Debtor
(including,  without limitation,  the issuance of additional shares of preferred
or common stock of any Account Debtor of whatever class to the Pledgor),  or any
option  included  within  the  Stock  is  exercised,  or  both,  then  all  new,
substituted and additional shares, or other securities, issued to the Pledgor by
reason of any such change or exercise  shall be delivered to and held by Pledgee
under the


<PAGE>



terms of this Agreement in the same manner as the Collateral  originally pledged
under this Agreement.

                  g.  Warrants,  Options  and Other  Rights.  In the event  that
during the term of this Agreement  subscription  warrants or any other rights or
options  shall be issued in  connection  with any of the  Collateral,  then such
warrants,  rights and options shall be  immediately  assigned to Pledgee and all
new stock or other  securities  so  acquired  by  Pledgor  shall be  immediately
assigned  to Pledgee to be held  under the terms of this  Agreement  in the same
manner as the Collateral originally pledged hereunder.

                  h. Registration.  (a) Upon or at any time after the occurrence
of an Event of  Default,  if for any reason  Pledgee  desires to sell any of the
Stock at a public sale,  Pledgor will,  at any time and from time to time,  upon
the written  request of the  Pledgee,  use its best efforts to take or cause the
issuer of such Stock to take such  action and  prepare,  distribute  and/or file
such  documents,  as are  required or  advisable  in the  reasonable  opinion of
counsel for the Pledgee to permit the public sale of such Stock.  Pledgor agrees
to use all reasonable efforts to qualify,  file or register, or cause the issuer
of such Stock to qualify, file or register,  any of the Stock under the Blue Sky
or other  securities  laws of such states as may be requested by the Pledgee and
keep effective, or cause to be kept effective, all such qualifications,  filings
or  registrations.  Pledgor  will bear all costs and  expenses of  carrying  out
obligations under this Section.  Pledgor  acknowledges that there is no adequate
remedy at law for failure by it to comply with the  provisions  of this  Section
and that such  failure  would not be  adequately  compensable  in  damages,  and
therefore  agrees  that  its  agreements   contained  in  this  Section  may  be
specifically enforced.

                  (b) Upon or at any time  after the  occurrence  of an Event of
Default,  should Pledgee  determine  that,  prior to any public  offering of any
securities  contained  in any of  the  Collateral,  such  securities  should  be
registered  under the  Securities Act and/or  registered or qualified  under any
other federal or state law, and that such registration  and/or  qualification is
not practical,  then Pledgor agrees that it will be commercially reasonable if a
private sale, upon at least 10 days' prior notice to Pledgor,  is arranged so as
to avoid a public  offering  even  though  the sales  price  established  and/or
obtained may be  substantially  less than prices quoted for such security on any
market or exchange.

                  i.  Default.  (a) Upon the  existence  of an Event of Default,
Pledgee  shall have,  in addition to any other rights given by law or the rights
given under this Agreement or the Loan Agreement, all of the rights and remedies
with respect to the  Collateral of a secured party under the Uniform  Commercial
Code.

                  (b) In addition,  with respect to the Collateral,  or any part
of the  Collateral,  which  shall  then be or  shall  thereafter  come  into the
possession or custody of Pledgee:

                  (i)  Pledgee  may  sell or  cause  the  same to be sold at any
         broker's  board or at public or private  sale,  in one or more sales or
         lots, at such price as Pledgee may deem best, and for cash or on credit
         or for future delivery,  without assumption of any credit risk, and the
         purchaser of any or all of the Collateral so sold shall thereafter hold
         the same absolutely,  free from any claim,  encumbrance or right of any
         kind  whatsoever.  Unless any of the  Collateral  threatens  to decline
         speedily  in  value or is or  becomes  of a type  sold on a  recognized
         market,  Pledgee  will give Pledgor  reasonable  notice of the time and
         place of any public sale of


<PAGE>



         the  Collateral,  or of the time after which any private  sale or other
         intended  disposition  is to be made. Any sale of any of the Collateral
         conducted in conformity with reasonable  commercial practices of banks,
         commercial  finance companies,  insurance  companies or other financial
         institutions   disposing  of  property   similar  to  such  Collateral,
         including any sale made pursuant to Paragraph 8 hereof, shall be deemed
         to be  commercially  reasonable.  Notwithstanding  any provision to the
         contrary  contained in this Agreement,  any  requirements of reasonable
         notice shall be met if such notice is  deposited  in the United  States
         mails,  addressed to Pledgor as provided in  Paragraph  16, at least 10
         days before the time of the sale or disposition.  Any other requirement
         of notice, demand or advertisement for sale is, to the extent permitted
         by law, waived. Pledgee may, in Pledgee's own name, or in the name of a
         designee  or nominee,  buy at any public sale of any of the  Collateral
         and, if permitted by applicable  law, buy at any private sale of any of
         the  Collateral.  Pledgor will pay to Pledgee all  expenses  (including
         court  costs  and  reasonable   in-house  and  outside  attorneys'  and
         paralegals'  fees and expenses) of, or incident to, the  enforcement of
         any of the  provisions  of this  Agreement.  Since  federal  and  state
         securities laws may impose certain  restrictions on the method by which
         a sale  of any or all of  the  Collateral  may be  effected  after  the
         occurrence  of an  Event  of  Default,  Pledgor  agrees  that  upon the
         occurrence or existence of an Event of Default,  Pledgee may, from time
         to time,  attempt to sell all or any part of the Collateral by means of
         a private placement,  restricting the bidder and prospective purchasers
         to those who will  represent  and agree  that they are  purchasing  for
         investment  only and not for  distribution.  In so doing,  Pledgee  may
         solicit offers to buy the Collateral, or any part of it, for cash, from
         a  limited  number  of  investors  deemed  by  Pledgee,   in  Pledgee's
         reasonable judgment, to be financially responsible parties who might be
         interested in purchasing such Collateral,  and if Pledgee solicits such
         offers from not less than three such investors,  then the acceptance by
         Pledgee of the highest offer obtained therefrom shall be deemed to be a
         commercially reasonable method of disposition of such Collateral; and

                  (ii)  Pledgee,  or its  nominee,  may  without  notice  to the
         Pledgor,  notify any payor of the Notes of this Agreement,  direct that
         all sums  then and  thereafter  payable  pursuant  to the Notes be paid
         solely to the Pledgee, and collect and retain all sums payable pursuant
         to the Notes as they  become due and  payable and apply the same to the
         Obligations in accordance with the terms of the Loan Agreement.

                  j. Term.  This Agreement shall remain in full force and effect
until all of the  Obligations  have been fully paid and satisfied,  and the Loan
Agreement has been terminated. Upon termination of this Agreement as provided in
this  Paragraph 10, Pledgee agrees to return any Collateral in its possession to
Pledgor at the address set forth in Paragraph 16.

                  k.  Definitions.  Any  capitalized  terms used  herein and not
otherwise defined are used herein as defined in the Loan Agreement. The singular
shall include the plural and vice versa.

                  l.  Successors and Assigns.  This  Agreement  shall be binding
upon  and  inure  to the  benefit  of  Pledgor,  Pledgee  and  their  respective
successors and assigns.  Pledgor's successors and assigns shall include, without
limitation, a receiver, trustee or debtor in possession of or for Pledgor.

                  m.   Applicable Law.  THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED UNDER THE INTERNAL LAWS (AS OPPOSED TO CONFLICT OF LAWS PROVISIONS)


<PAGE>



OF THE STATE OF NEW YORK.  Whenever  possible,  each provision of this Agreement
shall  be  interpreted  in  such  manner  as to be  effective  and  valid  under
applicable  law,  but if any  provision  of this  Agreement  shall be held to be
prohibited or invalid under  applicable law, such provision shall be ineffective
only to the extent of such prohibition or invalidity,  without  invalidating the
remainder of such provision or the remaining provisions of this Agreement.

                  n.  Further  Assurances.  Pledgor  agrees  that  Pledgor  will
cooperate with Pledgee and will execute and deliver, or cause to be executed and
delivered,  all  such  other  stock  powers,  proxies,  instruments,  documents,
endorsements and resignations of officers and directors,  and will take all such
other  action,  including,  without  limitation,  the  filing  of UCC  financing
statements,  as Pledgee  may  reasonably  request  from time to time in order to
carry out the provisions and purposes of this Agreement.

                  o.  Pledgee's  Duty of Care.  Pledgee  shall have no duty with
respect to any Collateral other than as set forth in the Loan Agreement. Without
limiting the generality of the  foregoing,  Pledgee shall be under no obligation
to take any steps necessary to preserve rights in any of the Collateral  against
any other parties but may do so at Pledgee's  option,  but all expenses incurred
in connection therewith shall be for the sole account of Pledgor.

                  p.  Notices.  Any  notice,   request  or  other  communication
required or desired to be served,  given or delivered under this Agreement shall
be in writing and shall be given in the manner and to the addresses set forth in
the Loan Agreement.

                  q.  Section Headings.  The section headings in this Agreement 
are for convenience of reference only, and shall not affect in any way the
interpretation of any of the provisions of this Agreement.




<PAGE>



                  IN WITNESS  WHEREOF,  Pledgor and Pledgee have  executed  this
Agreement as of this 14th day of September, 1998.


                               FORSTMANN APPAREL, INC., as Pledgor



                                By:      /s/Rodney J. Peckham
                                   ---------------------------
                                Name: Rodney J. Peckham
                                Title: EVP & CFO



                              BANKAMERICA BUSINESS
                              CREDIT, INC., as Agent, as Pledgee


                              By:          /s/Louis Alexander
                                 -----------------------------
                              Name: Louis Alexander
                              Title: VP



<PAGE>




                                   Schedule 1
                                       to
                                    Agreement

                     Form of Endorsement Separate from Note


                                   ENDORSEMENT


                  FOR VALUE  RECEIVED,  Forstmann  Apparel,  Inc.  ("Forstmann")
hereby assigns and transfers unto BankAmerica  Business  Credit,  Inc., as Agent
("Agent")  under that certain  Amended and Restated Loan and Security  Agreement
dated as of _________,  1998 entered into among Forstmann,  Forstmann & Company,
Inc.,  the  Lenders  from time to time party  thereto  and the Agent one note of
[payor] for [principal  amount]  herewith,  standing in Fostmann's name and does
hereby  irrevocably  constitute and appoint the Agent as Fostmann's  attorney to
transfer said Note with full power of substitution in the premises.


Dated _________, ____


                                                  FORSTMANN APPAREL, INC.



                                                  By:_______________________
                                                  Name:
                                                  Title:

In presence of:


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



PLEDGE AGREEMENT
                                     between
                            FORSTMANN & COMPANY, INC.
                              a Georgia Corporation
                                       and
                       BANKAMERICA BUSINESS CREDIT, INC.,
                        a Delaware corporation, as Agent

          This Pledge Agreement ("Agreement") is made and entered into
as of July 23,  1997,  by  Forstmann  &  Company,  Inc.,  a Georgia  corporation
("Pledgor"),   in  favor  of  BankAmerica  Business  Credit,  Inc.,  a  Delaware
corporation, as Agent ("Pledgee").

Preliminary Statement.

                  A. Pledgor, Pledgee, in its capacity as agent, and the lenders
from time to time parties  thereto (the  "Lenders") will enter into that certain
Loan  and  Security  Agreement  dated  as of July  23,  1997 (as the same may be
amended,  restated,  modified  or  supplemented  from  time to time,  the  "Loan
Agreement"),  pursuant  to which  the  Lenders  will,  subject  to the terms and
conditions  thereof,  advance monies and make other  extensions of credit to the
Pledgor.  Capitalized  terms used and not defined herein shall have the meanings
assigned to such terms in the Loan Agreement.

                  B. The Loan Agreement  permits the Pledgor to convert accounts
receivable into, among other things,  promissory notes and securities consisting
of capital  stock,  subject to the terms and  conditions  with  respect  thereto
contained in the Loan Agreement.

                  C. The Lenders  have  required as a condition  to the Lenders'
advancement of funds under the Loan  Agreement that Pledgor  execute and deliver
to Pledgee this Agreement.

                  NOW, THEREFORE,  for and in consideration of the foregoing and
of any financial  accommodations  or extensions  of credit  (including,  without
limitation, any loan or advance by renewal, refinancing or extension of the Loan
Agreement or otherwise) heretofore,  now or hereafter made to or for the benefit
of  Pledgor  by  Pledgee  or  any  Lender,  and  for  other  good  and  valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
                  r.  Pledge.   Pledgor  hereby  pledges  and  grants   security
interests  to  Pledgee  in  all of  its  right,  title  and  interest  in and to
Restricted  Investments  arising from the  conversion of Accounts which are over
ninety (90) days past due and in any event are not  Eligible  Accounts  into (i)
securities  consisting  of capital  stock  (collectively,  the  "Stock")  of the
Account  Debtors,  accompanied  by stock  powers  duly  executed  in blank  (the
"Powers"); or (ii) securities consisting of promissory notes (collectively,  the
"Notes"),  of the Account Debtors and all payments  delivered in connection with
any  Notes,   accompanied  by  separate  instruments  of  endorsement  for  each
respective  Note, duly executed in blank in the form attached hereto as Schedule
1 and  made a part  hereof  (the  "Endorsements")  (said  Stock,  Notes,  Powers
Endorsements and proceeds  thereof,  together with the property and interests in
property  described in  Paragraphs  3, 6 and 7, being  hereinafter  collectively
referred to as the "Collateral"), as security for the payment and performance of
the Obligations. In the event Pledgor receives any Notes or Stock after the date
hereof,  it shall promptly,  but in no event later than five Business Days after
receipt  thereof,  deliver  the  same,  accompanied  by  appropriate  Powers  or
Endorsements, as applicable, affixed thereto or thereon, to the Pledgee or its


<PAGE>



nominee.  Pledgor  hereby  appoints  Pledgee as  Pledgor's  attorney-in-fact  to
arrange,  at Pledgee's option,  for the transfer,  upon or at any time after the
existence or occurrence of an Event of Default of the Collateral on the books of
the Company to the name of Pledgee or to the name of Pledgee's nominee.

                  s. Voting Rights.  During the term of this  Agreement,  and so
long as there  shall not occur or exist an Event of Default  and Pledgee has not
delivered the written notice referred to in clause (b) below, Pledgor shall have
the right to vote the Stock on all  corporate  questions  for all  purposes  not
inconsistent  with the terms of this Agreement and the Loan  Agreement.  Pledgee
shall be entitled to exercise all voting  powers  pertaining  to the  Collateral
from and after (a) the  occurrence  and during the  continuation  of an Event of
Default and (b)  Pledgee's  delivery of written  notice to Pledgor of  Pledgee's
intention to exercise such voting powers.

                  t.  Dividends and  Distributions.  (a) During the term of this
Agreement,  and so long as there  shall not exist an Event of  Default,  Pledgor
shall be  entitled to receive and retain any and all  dividends,  principal  and
interest paid in respect of the  Collateral,  provided,  however,  that from and
after (a) the occurrence and during the  continuation of an Event of Default and
(b) Pledgee's delivery of written notice to Pledgor to do so any and all:

                  (i)  dividends and interest paid or payable other than in cash
         in respect of, and instruments and other property received,  receivable
         or  otherwise  distributed  in  respect  of, or in  exchange  for,  any
         Collateral;

             (ii) dividends and other  distributions  paid or payable in cash in
         respect  of any  Collateral  in  connection  with a  partial  or  total
         liquidation  or  dissolution  or in  connection  with  a  reduction  of
         capital, capital surplus or paid-in surplus; and

            (iii) cash  paid,  payable or  otherwise  distributed  in respect of
         principal of, or in redemption of, or in exchange for, any Collateral;

shall be, and shall be forthwith delivered to the Pledgee to hold as, Collateral
and shall,  if received by the Pledgor,  be received in trust for the benefit of
the Pledgee, be segregated from the other property or funds of the Pledgor,  and
be  forthwith  delivered  to the  Pledgee as  Collateral  in the same form as so
received (with any necessary endorsement).

                  (b) Pledgee shall execute and deliver (or cause to be executed
and  delivered)  to the Pledgor all such  proxies and other  instruments  as the
Pledgor  may  reasonably  request  for the  purpose of  enabling  the Pledgor to
exercise the voting and other  rights which it is entitled to exercise  pursuant
to Paragraph 2 above and to receive the dividends or interest  payments which it
is  authorized  to  receive  and retain  pursuant  to  subparagraph  (a) of this
Paragraph 3.

                  (c) Upon the occurrence and during the continuance of an Event
of Default all  dividends  and  interest  paid which are received by the Pledgor
contrary to the  provisions  of  subparagraph  (a) of this  Paragraph 3 shall be
received in trust for the benefit of the Pledgee, shall be segregated from other
funds of the  Pledgor  and  shall  be  forthwith  paid  over to the  Pledgee  as
Collateral in the same form as so received (with any necessary endorsement).

                  u.     Representations and Covenants.  Pledgor warrants and 
represents that Pledgor is (or, in the case of any and all Notes and Stock 
delivered after the date hereof, will be) the sole owner, free and clear of all
liens, claims


<PAGE>



security  interests  and  encumbrances  of the  Notes  and Stock and any and all
voting rights associated therewith and that Pledgor has full power and authority
to enter into this Agreement. Pledgor covenants that Pledgor will continue to be
the sole owner,  free and clear of all liens,  claims,  security  interests  and
encumbrances  (except  those held by Pledgee) of 100% of the Notes and Stock and
any and all voting rights associated therewith.

                  Pledgor  warrants and represents that (a) there are (or in the
case of any and all Collateral  delivered after the date hereof, it will use its
best efforts to ensure that such Collateral will have) no restrictions  upon the
voting  rights or upon the  transfer of any of the  Collateral  other than those
which may appear on the face of the certificates evidencing the Collateral,  (b)
there  are (or in the case of any and all  Collateral  delivered  after the date
hereof,  it will use its best efforts to ensure that such  Collateral will have)
no warrants or other rights or options issued or outstanding in connection  with
any of the Collateral, (c) Pledgor has (or in the case of any and all Collateral
delivered  after the date  hereof,  will use its best  efforts to ensure that it
will  have)  the  right to vote,  pledge  and grant a  security  interest  in or
otherwise  transfer such Collateral free of any liens,  claims or  encumbrances,
(d) to the best of Pledgor's  knowledge,  each Note has been (or, in the case of
Notes delivered after the date hereof,  will use its best efforts to ensure that
such Notes will be) duly  authorized,  issued and  delivered,  and is the legal,
valid, and binding obligation of the issuer thereof, (e) each payor party to any
of the Notes has (or in the case of any and all Notes  delivered  after the date
hereof,  Pledgor  will use its best efforts to ensure that each such payor party
will have) no right of set off or defense or  counterclaim  which would  inhibit
the collection of all amounts outstanding under such Note, and (f) the Powers or
Endorsements,  as the  case  may be,  are  (or,  in the  case of  Stock or Notes
delivered after the date hereof, the Powers or Endorsements, as the case may be,
will be) duly executed and give,  or will give, as the case may be,  Pledgee the
authority such Powers or Endorsements, as the case may be, purport to confer.

                  v. Subsequent Changes Affecting Collateral. Pledgor represents
to Pledgee that Pledgor has made Pledgor's own arrangements for keeping informed
of changes or potential  changes  affecting the Collateral  (including,  but not
limited  to,  rights to  convert,  rights to  subscribe,  payment of  dividends,
reorganization or other exchanges, tender offers and voting rights), and Pledgor
agrees that Pledgee  shall have no  responsibility  or liability  for  informing
Pledgor  of any such  changes or  potential  changes or for taking any action or
omitting to take any action with respect  thereto.  Pledgee may,  upon or at any
time after the  occurrence of an Event of Default,  and after written notice and
at  Pledgee's  option,  transfer or register the  Collateral  or any part of the
Collateral  into  Pledgee's  or  Pledgee's  nominee's  name with or without  any
indication that such  Collateral is subject to the security  interest under this
Agreement.

                  w. Stock  Adjustments.  In the event  that  during the term of
this  Agreement  any stock  dividend,  reclassification,  readjustment  or other
change is declared or made in the capital  structure of any Company  (including,
without  limitation,  the issuance of  additional  shares of preferred or common
stock of any Company of whatever class to the Pledgor),  or any option  included
within the Stock is exercised, or both, then all new, substituted and additional
shares, or other securities,  issued to the Pledgor by reason of any such change
or exercise  shall be delivered  to and held by Pledgee  under the terms of this
Agreement in the same manner as the  Collateral  originally  pledged  under this
Agreement.



<PAGE>



                  x.  Warrants,  Options  and Other  Rights.  In the event  that
during the term of this Agreement  subscription  warrants or any other rights or
options  shall be issued in  connection  with any of the  Collateral,  then such
warrants,  rights and options shall be  immediately  assigned to Pledgee and all
new stock or other  securities  so  acquired  by  Pledgor  shall be  immediately
assigned  to Pledgee to be held  under the terms of this  Agreement  in the same
manner as the Collateral originally pledged hereunder.

                  y. Registration.  (a) Upon or at any time after the occurrence
of an Event of  Default,  if for any reason  Pledgee  desires to sell any of the
Stock at a public sale,  Pledgor will,  at any time and from time to time,  upon
the written  request of the  Pledgee,  use its best efforts to take or cause the
issuer of such Stock to take such  action and  prepare,  distribute  and/or file
such  documents,  as are  required or  advisable  in the  reasonable  opinion of
counsel for the Pledgee to permit the public sale of such Stock.  Pledgor agrees
to use all reasonable efforts to qualify,  file or register, or cause the issuer
of such Stock to qualify, file or register,  any of the Stock under the Blue Sky
or other  securities  laws of such states as may be requested by the Pledgee and
keep effective, or cause to be kept effective, all such qualifications,  filings
or  registrations.  Pledgor  will bear all costs and  expenses of  carrying  out
obligations under this Section.  Pledgor  acknowledges that there is no adequate
remedy at law for failure by it to comply with the  provisions  of this  Section
and that such  failure  would not be  adequately  compensable  in  damages,  and
therefore  agrees  that  its  agreements   contained  in  this  Section  may  be
specifically enforced.

                  (b) Upon or at any time  after the  occurrence  of an Event of
Default,  should Pledgee  determine  that,  prior to any public  offering of any
securities  contained  in any of  the  Collateral,  such  securities  should  be
registered  under the  Securities Act and/or  registered or qualified  under any
other federal or state law, and that such registration  and/or  qualification is
not practical,  then Pledgor agrees that it will be commercially reasonable if a
private sale, upon at least 10 days' prior notice to Pledgor,  is arranged so as
to avoid a public  offering  even  though  the sales  price  established  and/or
obtained may be  substantially  less than prices quoted for such security on any
market or exchange.

                  z.  Default.  (a) Upon the  existence  of an Event of Default,
Pledgee  shall have,  in addition to any other rights given by law or the rights
given under this Agreement or the Loan Agreement, all of the rights and remedies
with respect to the  Collateral of a secured party under the Uniform  Commercial
Code.


                  (b) In addition,  with respect to the Collateral,  or any part
of the  Collateral,  which  shall  then be or  shall  thereafter  come  into the
possession or custody of Pledgee:

                  (i)  Pledgee  may  sell or  cause  the  same to be sold at any
         broker's  board or at public or private  sale,  in one or more sales or
         lots, at such price as Pledgee may deem best, and for cash or on credit
         or for future delivery,  without assumption of any credit risk, and the
         purchaser of any or all of the Collateral so sold shall thereafter hold
         the same absolutely,  free from any claim,  encumbrance or right of any
         kind  whatsoever.  Unless any of the  Collateral  threatens  to decline
         speedily  in  value or is or  becomes  of a type  sold on a  recognized
         market,  Pledgee  will give Pledgor  reasonable  notice of the time and
         place of any public sale of the Collateral,  or of the time after which
         any private sale or other intended  disposition is to be made. Any sale
         of any of the Collateral


<PAGE>



         conducted in conformity with reasonable  commercial practices of banks,
         commercial  finance companies,  insurance  companies or other financial
         institutions   disposing  of  property   similar  to  such  Collateral,
         including any sale made pursuant to Paragraph 8 hereof, shall be deemed
         to be  commercially  reasonable.  Notwithstanding  any provision to the
         contrary  contained in this Agreement,  any  requirements of reasonable
         notice shall be met if such notice is  deposited  in the United  States
         mails,  addressed to Pledgor as provided in  Paragraph  16, at least 10
         days before the time of the sale or disposition.  Any other requirement
         of notice, demand or advertisement for sale is, to the extent permitted
         by law, waived. Pledgee may, in Pledgee's own name, or in the name of a
         designee  or nominee,  buy at any public sale of any of the  Collateral
         and, if permitted by applicable  law, buy at any private sale of any of
         the  Collateral.  Pledgor will pay to Pledgee all  expenses  (including
         court  costs  and  reasonable   in-house  and  outside  attorneys'  and
         paralegals'  fees and expenses) of, or incident to, the  enforcement of
         any of the  provisions  of this  Agreement.  Since  federal  and  state
         securities laws may impose certain  restrictions on the method by which
         a sale  of any or all of  the  Collateral  may be  effected  after  the
         occurrence  of an  Event  of  Default,  Pledgor  agrees  that  upon the
         occurrence or existence of an Event of Default,  Pledgee may, from time
         to time,  attempt to sell all or any part of the Collateral by means of
         a private placement,  restricting the bidder and prospective purchasers
         to those who will  represent  and agree  that they are  purchasing  for
         investment  only and not for  distribution.  In so doing,  Pledgee  may
         solicit offers to buy the Collateral, or any part of it, for cash, from
         a  limited  number  of  investors  deemed  by  Pledgee,   in  Pledgee's
         reasonable judgment, to be financially responsible parties who might be
         interested in purchasing such Collateral,  and if Pledgee solicits such
         offers from not less than three such investors,  then the acceptance by
         Pledgee of the highest offer obtained therefrom shall be deemed to be a
         commercially reasonable method of disposition of such Collateral; and

                  (ii)  Pledgee,  or its  nominee,  may  without  notice  to the
         Pledgor,  notify any payor of the Notes of this Agreement,  direct that
         all sums  then and  thereafter  payable  pursuant  to the Notes be paid
         solely to the Pledgee, and collect and retain all sums payable pursuant
         to the Notes as they  become due and  payable and apply the same to the
         Obligations in accordance with the terms of the Loan Agreement.

                  aa. Term. This Agreement shall remain in full force and effect
until all of the  Obligations  have been fully paid and satisfied,  and the Loan
Agreement has been terminated. Upon termination of this Agreement as provided in
this  Paragraph 10, Pledgee agrees to return any Collateral in its possession to
Pledgor at the address set forth in Paragraph 16.

                  bb.  Definitions.  Any capitalized terms used herein and not
otherwise defined are used herein as defined in the Loan Agreement.  The
singular shall include the plural and vice versa.

                  cc.  Successors and Assigns.  This Agreement shall be binding
upon and inure to the benefit of Pledgor, Pledgee and their respective 
successors and assigns.  Pledgor's successors and assigns shall include, without
limitation, a receiver, trustee or debtor in possession of or for Pledgor.

                  dd.  Applicable Law.  THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED UNDER THE INTERNAL LAWS (AS OPPOSED TO CONFLICT OF LAWS PROVISIONS)
OF THE STATE OF NEW YORK.  Whenever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under


<PAGE>



applicable  law,  but if any  provision  of this  Agreement  shall be held to be
prohibited or invalid under  applicable law, such provision shall be ineffective
only to the extent of such prohibition or invalidity,  without  invalidating the
remainder of such provision or the remaining provisions of this Agreement.

                  ee.  Further  Assurances.  Pledgor  agrees that  Pledgor  will
cooperate with Pledgee and will execute and deliver, or cause to be executed and
delivered,  all  such  other  stock  powers,  proxies,  instruments,  documents,
endorsements and resignations of officers and directors,  and will take all such
other  action,  including,  without  limitation,  the  filing  of UCC  financing
statements,  as Pledgee  may  reasonably  request  from time to time in order to
carry out the provisions and purposes of this Agreement.

                  ff.  Pledgee's  Duty of Care.  Pledgee shall have no duty with
respect to any Collateral other than as set forth in the Loan Agreement. Without
limiting the generality of the  foregoing,  Pledgee shall be under no obligation
to take any steps necessary to preserve rights in any of the Collateral  against
any other parties but may do so at Pledgee's  option,  but all expenses incurred
in connection therewith shall be for the sole account of Pledgor.

                  gg.  Notices.  Any notice, request or other communication 
required or desired to be served, given or delivered under this Agreement shall 
be in writing and shall be given in the manner and to the addresses set forth 
in the Loan Agreement

                  hh.  Section Headings.  The section headings in this Agreement
are for convenience of reference only, and shall not affect in any way the
interpretation of any of the provisions of this Agreement.

<PAGE>
                  IN WITNESS  WHEREOF,  Pledgor and Pledgee have  executed  this
Agreement as of this 23th day of July, 1997.


                                FORSTMANN & COMPANY, INC., as Pledgor


                                By:      /s/Rodney J. Peckham
                                   ----------------------------
                                Name: Rodney J. Peckham
                                Title: EVP & CFO



                              BANKAMERICA BUSINESS
                              CREDIT, INC., as Agent, as Pledgee


                              By:          /s/Louis Alexander
                                 ------------------------------
                              Name: Louis Alexander
                              Title: Vice President



<PAGE>




                                   Schedule 1
                                       to
                                    Agreement

                     Form of Endorsement Separate from Note


                                   ENDORSEMENT


                  FOR VALUE RECEIVED,  Forstmann & Company,  Inc.  ("Forstmann")
hereby assigns and transfers unto BankAmerica  Business  Credit,  Inc., as Agent
("Agent")  under that certain Loan and Security  Agreement  dated as of July 23,
1997 entered into among  Forstmann,  the Lenders from time to time party thereto
and the Agent one note of [payor] for [principal  amount] herewith,  standing in
Fostmann's name and does hereby irrevocably  constitute and appoint the Agent as
Fostmann's attorney to transfer said Note with full power of substitution in the
premises.


Dated _________, ____


                               FORSTMANN & COMPANY, INC.


                               By:_______________________
                                  Name:
                                  Title:

In presence of:


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


<PAGE>





                                PLEDGE AGREEMENT
                                     between
                            FORSTMANN & COMPANY, INC.
                              a Georgia Corporation
                                       and
                       BANKAMERICA BUSINESS CREDIT, INC.,
                        a Delaware corporation, as Agent

                  This Pledge  Agreement  ("Agreement") is made and entered into
as of September  14, 1998, by Forstmann & Company,  Inc., a Georgia  corporation
("Pledgor"), in favor of BankAmerica Business Credit, Inc., a Delaware
corporation, as Agent ("Pledgee").

Preliminary Statement.

                  A. Pledgor,  Forstmann Apparel, Inc. ("FAI"),  Pledgee, in its
capacity  as agent,  and the  lenders  from time to time  parties  thereto  (the
"Lenders")  will enter into that certain  Amended and Restated Loan and Security
Agreement dated as of September 14, 1998 (as the same may be amended,  restated,
modified or supplemented from time to time, the "Loan  Agreement"),  pursuant to
which the Lenders will,  subject to the terms and  conditions  thereof,  advance
monies and make other  extensions of credit to the Pledgor and FAI.  Capitalized
terms used and not defined herein shall have the meanings assigned to such terms
in the Loan Agreement.

                  B.       FAI is a wholly-owned subsidiary of Pledgor.

                  C. The Lenders  have  required as a condition  to the Lenders'
advancement of funds under the Loan  Agreement that Pledgor  execute and deliver
to Pledgee this Agreement.

                  NOW, THEREFORE,  for and in consideration of the foregoing and
of any financial  accommodations  or extensions  of credit  (including,  without
limitation, any loan or advance by renewal, refinancing or extension of the Loan
Agreement or otherwise) heretofore,  now or hereafter made to or for the benefit
of  Pledgor  by  Pledgee  or  any  Lender,  and  for  other  good  and  valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:

                  ii.  Pledge.   Pledgor  hereby  pledges  and  grants  security
interests  to  Pledgee  in  all of  its  right,  title  and  interest  in and to
securities  consisting  of capital  stock  (collectively,  the  "Stock") of FAI,
accompanied by stock powers duly executed in blank (the  "Powers")  (said Stock,
Powers and  proceeds  thereof,  together  with the  property  and  interests  in
property  described in  Paragraphs  3, 6 and 7, being  hereinafter  collectively
referred to as the "Collateral"), as security for the payment and performance of
the Obligations.  In the event Pledgor receives any Stock after the date hereof,
it shall  promptly,  but in no event later than five Business Days after receipt
thereof, deliver the same, accompanied by appropriate Powers, affixed thereto or
thereon,  to the Pledgee or its  nominee.  Pledgor  hereby  appoints  Pledgee as
Pledgor's  attorney-in-fact  to arrange,  at Pledgee's option, for the transfer,
upon or at any time after the existence or occurrence of an Event of Default, of
the Collateral on the books of the Pledgor to the name of Pledgee or to the name
of Pledgee's nominee.



<PAGE>



                  jj. Voting Rights.  During the term of this Agreement,  and so
long as there  shall not occur or exist an Event of Default  and Pledgee has not
delivered the written notice referred to in clause (b) below, Pledgor shall have
the right to vote the Stock on all  corporate  questions  for all  purposes  not
inconsistent  with the terms of this Agreement and the Loan  Agreement.  Pledgee
shall be entitled to exercise all voting  powers  pertaining  to the  Collateral
from and after (a) the  occurrence  and during the  continuation  of an Event of
Default and (b)  Pledgee's  delivery of written  notice to Pledgor of  Pledgee's
intention to exercise such voting powers.

                  kk. Dividends and  Distributions.  (a) During the term of this
Agreement,  and so long as there  shall not exist an Event of  Default,  Pledgor
shall be  entitled to receive and retain any and all  dividends,  principal  and
interest paid in respect of the  Collateral,  provided,  however,  that from and
after (a) the occurrence and during the  continuation of an Event of Default and
(b) Pledgee's delivery of written notice to Pledgor to do so any and all:

                  (i)  dividends and interest paid or payable other than in cash
         in respect of, and instruments and other property received,  receivable
         or  otherwise  distributed  in  respect  of, or in  exchange  for,  any
         Collateral;

             (ii) dividends and other  distributions  paid or payable in cash in
         respect  of any  Collateral  in  connection  with a  partial  or  total
         liquidation  or  dissolution  or in  connection  with  a  reduction  of
         capital, capital surplus or paid-in surplus; and

            (iii) cash  paid,  payable or  otherwise  distributed  in respect of
         principal of, or in redemption of, or in exchange for, any Collateral;

shall be, and shall be forthwith delivered to the Pledgee to hold as, Collateral
and shall,  if received by the Pledgor,  be received in trust for the benefit of
the Pledgee, be segregated from the other property or funds of the Pledgor,  and
be  forthwith  delivered  to the  Pledgee as  Collateral  in the same form as so
received (with any necessary endorsement).

                  (b) Pledgee shall execute and deliver (or cause to be executed
and  delivered)  to the Pledgor all such  proxies and other  instruments  as the
Pledgor  may  reasonably  request  for the  purpose of  enabling  the Pledgor to
exercise the voting and other  rights which it is entitled to exercise  pursuant
to Paragraph 2 above and to receive the dividends or interest  payments which it
is  authorized  to  receive  and retain  pursuant  to  subparagraph  (a) of this
Paragraph 3.

                  (c) Upon the occurrence and during the continuance of an Event
of Default all  dividends  and  interest  paid which are received by the Pledgor
contrary to the  provisions  of  subparagraph  (a) of this  Paragraph 3 shall be
received in trust for the benefit of the Pledgee, shall be segregated from other
funds of the  Pledgor  and  shall  be  forthwith  paid  over to the  Pledgee  as
Collateral in the same form as so received (with any necessary endorsement).

                  ll.  Representations  and  Covenants.   Pledgor  warrants  and
represents that Pledgor is (or, in the case of any and all Stock delivered after
the date hereof,  will be) the sole owner,  free and clear of all liens,  claims
security  interests and  encumbrances of the Stock and any and all voting rights
associated therewith and that Pledgor has full power and authority to enter into
this  Agreement.  Pledgor  covenants  that Pledgor will  continue to be the sole
owner, free and clear of all liens, claims, security interests and


<PAGE>



encumbrances (except those held by Pledgee) of 100% of the Stock and any and all
voting rights associated therewith.

                  Pledgor  warrants and represents that (a) there are (or in the
case of any and all Collateral  delivered after the date hereof, it will use its
best efforts to ensure that such Collateral will have) no restrictions  upon the
voting  rights or upon the  transfer of any of the  Collateral  other than those
which may appear on the face of the certificates evidencing the Collateral,  (b)
there  are (or in the case of any and all  Collateral  delivered  after the date
hereof,  it will use its best efforts to ensure that such  Collateral will have)
no warrants or other rights or options issued or outstanding in connection  with
any of the Collateral, (c) Pledgor has (or in the case of any and all Collateral
delivered  after the date  hereof,  will use its best  efforts to ensure that it
will  have)  the  right to vote,  pledge  and grant a  security  interest  in or
otherwise  transfer such Collateral free of any liens,  claims or  encumbrances,
and (d) the  Powers  are  (or,  in the case of Stock  delivered  after  the date
hereof,  the Powers will be) duly  executed and give,  or will give, as the case
may be, Pledgee the authority such Powers purport to confer.

                  mm.   Subsequent   Changes   Affecting   Collateral.   Pledgor
represents  to Pledgee  that Pledgor has made  Pledgor's  own  arrangements  for
keeping  informed  of changes or  potential  changes  affecting  the  Collateral
(including, but not limited to, rights to convert, rights to subscribe,  payment
of  dividends,  reorganization  or other  exchanges,  tender  offers  and voting
rights),  and  Pledgor  agrees  that  Pledgee  shall have no  responsibility  or
liability for informing  Pledgor of any such changes or potential changes or for
taking any action or omitting to take any action with respect  thereto.  Pledgee
may, upon or at any time after the occurrence of an Event of Default,  and after
written notice and at Pledgee's  option,  transfer or register the Collateral or
any part of the Collateral  into  Pledgee's or Pledgee's  nominee's name with or
without any indication that such Collateral is subject to the security  interest
under this Agreement.

                  nn.  Stock  Adjustments.  In the event that during the term of
this  Agreement  any stock  dividend,  reclassification,  readjustment  or other
change is declared or made in the capital  structure of FAI (including,  without
limitation,  the issuance of  additional  shares of preferred or common stock of
FAI of whatever class to the Pledgor),  or any option  included within the Stock
is exercised, or both, then all new, substituted and additional shares, or other
securities, issued to the Pledgor by reason of any such change or exercise shall
be  delivered  to and held by Pledgee  under the terms of this  Agreement in the
same manner as the Collateral originally pledged under this Agreement.

                  oo.  Warrants,  Options  and Other  Rights.  In the event that
during the term of this Agreement  subscription  warrants or any other rights or
options  shall be issued in  connection  with any of the  Collateral,  then such
warrants,  rights and options shall be  immediately  assigned to Pledgee and all
new stock or other  securities  so  acquired  by  Pledgor  shall be  immediately
assigned  to Pledgee to be held  under the terms of this  Agreement  in the same
manner as the Collateral originally pledged hereunder.

                  pp.  Registration.  (a)  Upon or at any time after the 
occurrence of an Event of Default, if for any reason Pledgee desires to sell 
any of the Stock at a public sale, Pledgor will, at any time and from time to 
time, upon the written request of the Pledgee, use its best efforts to take or 
cause the issuer of such Stock to take such action and prepare, distribute 
and/or file such documents, as are required or advisable in the reasonable 
opinion of


<PAGE>



counsel for the Pledgee to permit the public sale of such Stock.  Pledgor agrees
to use all reasonable efforts to qualify,  file or register, or cause the issuer
of such Stock to qualify, file or register,  any of the Stock under the Blue Sky
or other  securities  laws of such states as may be requested by the Pledgee and
keep effective, or cause to be kept effective, all such qualifications,  filings
or  registrations.  Pledgor  will bear all costs and  expenses of  carrying  out
obligations under this Section.  Pledgor  acknowledges that there is no adequate
remedy at law for failure by it to comply with the  provisions  of this  Section
and that such  failure  would not be  adequately  compensable  in  damages,  and
therefore  agrees  that  its  agreements   contained  in  this  Section  may  be
specifically enforced.

                  (b) Upon or at any time  after the  occurrence  of an Event of
Default,  should Pledgee  determine  that,  prior to any public  offering of any
securities  contained  in any of  the  Collateral,  such  securities  should  be
registered  under the  Securities Act and/or  registered or qualified  under any
other federal or state law, and that such registration  and/or  qualification is
not practical,  then Pledgor agrees that it will be commercially reasonable if a
private sale, upon at least 10 days' prior notice to Pledgor,  is arranged so as
to avoid a public  offering  even  though  the sales  price  established  and/or
obtained may be  substantially  less than prices quoted for such security on any
market or exchange.

                  qq.  Default.  (a)  Upon the existence of an Event of Default,
Pledgee shall have, in addition to any other rights given by law or the rights
given under this Agreement or the Loan Agreement, all of the rights and
remedies with respect to the Collateral of a secured party under the Uniform
Commercial Code.

                  (b) In addition,  with respect to the Collateral,  or any part
of the  Collateral,  which  shall  then be or  shall  thereafter  come  into the
possession or custody of Pledgee,  Pledgee may sell or cause the same to be sold
at any  broker's  board or at public or  private  sale,  in one or more sales or
lots,  at such price as Pledgee may deem best,  and for cash or on credit or for
future delivery, without assumption of any credit risk, and the purchaser of any
or all of the Collateral so sold shall thereafter hold the same absolutely, free
from any claim,  encumbrance or right of any kind whatsoever.  Unless any of the
Collateral  threatens  to decline  speedily  in value or is or becomes of a type
sold on a recognized market,  Pledgee will give Pledgor reasonable notice of the
time and place of any public sale of the Collateral,  or of the time after which
any private sale or other intended disposition is to be made. Any sale of any of
the Collateral  conducted in conformity with reasonable  commercial practices of
banks,  commercial  finance  companies,  insurance  companies or other financial
institutions  disposing of property  similar to such  Collateral,  including any
sale made  pursuant to  Paragraph 8 hereof,  shall be deemed to be  commercially
reasonable.  Notwithstanding  any  provision to the  contrary  contained in this
Agreement,  any requirements of reasonable notice shall be met if such notice is
deposited  in the United  States  mails,  addressed  to Pledgor as  provided  in
Paragraph 16, at least 10 days before the time of the sale or  disposition.  Any
other requirement of notice,  demand or advertisement for sale is, to the extent
permitted by law, waived.  Pledgee may, in Pledgee's own name, or in the name of
a designee or nominee,  buy at any public sale of any of the Collateral  and, if
permitted by applicable  law, buy at any private sale of any of the  Collateral.
Pledgor will pay to Pledgee all expenses  (including  court costs and reasonable
in-house  and outside  attorneys'  and  paralegals'  fees and  expenses)  of, or
incident to, the enforcement of any of the provisions of this  Agreement.  Since
federal and state securities laws may impose certain  restrictions on the method
by which a sale of any or all of the Collateral may


<PAGE>



be effected  after the  occurrence of an Event of Default,  Pledgor  agrees that
upon the occurrence or existence of an Event of Default,  Pledgee may, from time
to time, attempt to sell all or any part of the Collateral by means of a private
placement,  restricting the bidder and prospective  purchasers to those who will
represent and agree that they are  purchasing  for  investment  only and not for
distribution.  In so doing, Pledgee may solicit offers to buy the Collateral, or
any part of it, for cash, from a limited number of investors  deemed by Pledgee,
in Pledgee's  reasonable  judgment,  to be financially  responsible  parties who
might be interested in purchasing such Collateral,  and if Pledgee solicits such
offers from not less than three such  investors,  then the acceptance by Pledgee
of the highest offer  obtained  therefrom  shall be deemed to be a  commercially
reasonable method of disposition of such Collateral.

                  rr. Term. This Agreement shall remain in full force and effect
until all of the  Obligations  have been fully paid and satisfied,  and the Loan
Agreement has been terminated. Upon termination of this Agreement as provided in
this  Paragraph 10, Pledgee agrees to return any Collateral in its possession to
Pledgor at the address set forth in Paragraph 16.

                  ss.  Definitions.  Any capitalized terms used herein and not
otherwise defined are used herein as defined in the Loan Agreement.  The
singular shall include the plural and vice versa.

                  tt.  Successors and Assigns.  This Agreement shall be binding
upon and inure to the benefit of Pledgor, Pledgee and their respective 
successors and assigns.  Pledgor's successors and assigns shall include, without
limitation, a receiver, trustee or debtor in possession of or for Pledgor.

                  uu.  Applicable  Law. THIS AGREEMENT  SHALL BE GOVERNED BY AND
CONSTRUED UNDER THE INTERNAL LAWS (AS OPPOSED TO CONFLICT OF LAWS PROVISIONS) OF
THE STATE OF NEW YORK. Whenever possible, each provision of this Agreement shall
be interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement shall be held to be prohibited or invalid
under  applicable law, such provision shall be ineffective only to the extent of
such  prohibition  or  invalidity,  without  invalidating  the remainder of such
provision or the remaining provisions of this Agreement.

                  vv.  Further  Assurances.  Pledgor  agrees that  Pledgor  will
cooperate with Pledgee and will execute and deliver, or cause to be executed and
delivered,  all  such  other  stock  powers,  proxies,  instruments,  documents,
endorsements and resignations of officers and directors,  and will take all such
other  action,  including,  without  limitation,  the  filing  of UCC  financing
statements,  as Pledgee  may  reasonably  request  from time to time in order to
carry out the provisions and purposes of this Agreement.

                  ww.  Pledgee's  Duty of Care.  Pledgee shall have no duty with
respect to any Collateral other than as set forth in the Loan Agreement. Without
limiting the generality of the  foregoing,  Pledgee shall be under no obligation
to take any steps necessary to preserve rights in any of the Collateral  against
any other parties but may do so at Pledgee's  option,  but all expenses incurred
in connection therewith shall be for the sole account of Pledgor.

                  xx.  Notices.  Any  notice,  request  or  other  communication
required or desired to be served,  given or delivered under this Agreement shall
be in writing and shall be given in the manner and to the addresses set forth in
the Loan Agreement.



<PAGE>



                  yy. Section Headings.  The section headings in this Agreement
are for convenience of reference only, and shall not affect in any way the
interpretation of any of the provisions of this Agreement.




<PAGE>



                  IN WITNESS  WHEREOF,  Pledgor and Pledgee have  executed  this
Agreement as of this 14th day of September, 1998.


                               FORSTMANN & COMPANY, INC., as Pledgor



                                By:      /s/Rodney J. Peckham
                                   ----------------------------
                                Name: Rodney J. Peckham
                                Title: EVP & CFO



                              BANKAMERICA BUSINESS
                              CREDIT, INC., as Agent, as Pledgee


                              By:          /s/Louis Alexander
                                 ------------------------------
                              Name: Louis Alexander
                              Title: VP
<PAGE>



                                   SCHEDULE 1

                       NOTICE OF ASSIGNMENT AND ACCEPTANCE


                                                  ---------------, ----




BankAmerica Business Credit, Inc.
40 East 52nd Street
New York, New York 10022
Attn:

Re:  Forstmann & Company, Inc.; Forstmann Apparel, Inc.

Ladies and Gentlemen:

         We refer to the Amended and Restated Loan and Security  Agreement dated
as  of  September  14,  1998  (as  amended,  amended  and  restated,   modified,
supplemented  or  renewed  from  time  to time  the  "Credit  Agreement")  among
Forstmann & Company, Inc.  ("Forstmann"),  Forstmann Apparel, Inc. ("FAI") (each
of the foregoing, individually a "Borrower" and, collectively, the "Borrowers"),
the Lenders referred to therein and BankAmerica  Business Credit, Inc., as agent
for the Lenders (the  "Agent").  Terms defined in the Credit  Agreement are used
herein as therein defined.

         1. We hereby give you notice of, and request your  acknowledgement  of,
the assignment by  __________________  (the "Assignor") to _______________  (the
"Assignee") of _____% of the right, title and interest of the Assignor in and to
the Credit  Agreement  (including,  without  limitation,  the  right,  title and
interest  of  the  Assignor  in  and to the  Commitments  of the  Assignor,  all
outstanding  Loans  made  or  maintained  by the  Assignor  and  the  Assignor's
participation in the Letters of Credit pursuant to the Assignment and Acceptance
Agreement  attached hereto (the "Assignment and Acceptance").  We understand and
agree  that  the  Assignor's   Commitment,   as  of  ____________,   ____  ,  is
$___________,  the aggregate amount of its outstanding Loans is  $_____________,
and its participation in Credit Obligations is $_____________.

         2. The Assignee  agrees  that,  from and after the  Effective  Date (as
defined in the  Assignment  and  Acceptance),  the Assignee will be bound by the
terms of the Credit Agreement as fully and to the same extent as if the Assignee
were the Lender originally holding such interest in the Credit Agreement.

         3.       The following administrative details apply to the Assignee:

                  (A)      Notice Address:

                           Assignee name: __________________________
                           Address:  _______________________________
                           Attention:  _____________________________
                           Telephone:  (___) _______________________
                           Telecopier:  (___) ______________________



<PAGE>



                  (B)      Payment Instructions:

                           Account No.:  ___________________________
                           At:           ___________________________
                           Reference:    ___________________________
                           Attention:    ___________________________

         4. You are entitled to rely upon the  representations,  warranties  and
covenants of each of the Assignor and Assignee  contained in the  Assignment and
Acceptance.

         IN WITNESS  WHEREOF,  the Assignor  and the  Assignee  have caused this
Notice of  Assignment  and  Acceptance to be executed by their  respective  duly
authorized officials, officers or agents as of the date first above mentioned.

                                            Very truly yours,

                                            [NAME OF ASSIGNOR]

                                            By:      
                                                     Name:
                                                     Title:


                                            [NAME OF ASSIGNEE]


                                            By:      
                                                     Name:
                                                     Title:


ACKNOWLEDGED AND ACCEPTED:

BankAmerica Business Credit, Inc,
as Agent

By:     
         Name:
         Title:


<PAGE>






                             FORSTMANN APPAREL, INC.
                          TRADEMARK SECURITY AGREEMENT

                  THIS TRADEMARK SECURITY AGREEMENT ("Agreement") made as of the
14th day of September,  1998, by and between FORSTMANN APPAREL, INC., a New York
corporation, with an office at [_______________]  ("Borrower"),  and BANKAMERICA
BUSINESS  CREDIT,  INC.,  in its capacity as agent (the "Agent") for the Lenders
(as hereinafter  defined),  with an office at 40 East 52nd Street, New York, New
York, 10022.


                              W I T N E S S E T H:

                  WHEREAS, the Borrower,  Forstmann & Company, Inc., the lenders
from time to time party  thereto (the  "Lenders"),  and the Agent are parties to
that  certain  Amended and  Restated  Loan and  Security  Agreement of even date
herewith  (as  the  same  may  be  further   amended,   restated,   modified  or
supplemented, the "Loan Agreement"); and

                  WHEREAS,  Agent has  required  Borrower to execute and deliver
this  Agreement  (i) in  order  to  secure  the  prompt  and  complete  payment,
observance and performance of all of the  "Obligations"  (as defined in the Loan
Agreement)  and (ii) as a condition  precedent  to the  Lenders'  execution  and
delivery of the Loan Agreement;

                  NOW,  THEREFORE,  in  consideration  of the premises set forth
herein  and  for  other  good  and  valuable  consideration,   the  receipt  and
sufficiency of which are hereby acknowledged, Borrower agrees as follows:

                  1.       Defined Terms.

                  (a) Unless  otherwise  defined herein,  each  capitalized term
used  herein  that is  defined  in the Loan  Agreement  shall  have the  meaning
specified for such term in the Loan Agreement.

                  (b) The words "hereof,"  "herein" and "hereunder" and words of
like import when used in this Agreement shall refer to this Agreement as a whole
and not to any particular provision of this Agreement,  and paragraph references
are to this Agreement unless otherwise specified.

                  (c) All terms defined in this  Agreement in the singular shall
have  comparable  meanings  when  used in the  plural,  and vice  versa,  unless
otherwise specified.

                  2. Incorporation of Premises. The premises set forth above are
incorporated  into this Agreement by this  reference  hereto and are made a part
hereof.

                  3. Incorporation of the Loan Agreement. The Loan Agreement and
the  terms  and  provisions  thereof  are  hereby  incorporated  herein in their
entirety by this reference thereto.

                  4.Security Interest in Trademarks.  To secure the complete and
timely payment, performance and satisfaction of all of the Obligations,
Borrower hereby grants to Agent, subject to the terms of existing licenses


<PAGE>



granted by Borrower  in the  ordinary  course of business  set forth on Schedule
8.13 of the Loan Agreement (the "Existing Licenses"), for the ratable benefit of
Agent, BABC and the Lenders, a security interest in all of Borrower's:

                  (a) now owned or existing  and  hereafter  acquired or arising
         trademarks,  registered trademarks,  trademark applications (except for
         any intent to use  applications,  and except for any trademark which is
         the  subject  of an  intent to use  application,  in each  case,  filed
         pursuant to Section  1(b) of the Lanham Act, 15 U.S.C.  Section  15017,
         until  Borrower  files an Amendment to Allege Use or a Statement of Use
         under Sections 1(c) and 1(d) of the Lanham Act is filed with respect to
         such trademark),  service marks,  registered  service marks and service
         mark applications  listed on Schedule A attached hereto and made a part
         hereof, together with any goodwill connected with and symbolized by any
         such  trademarks,  trademark  applications,  service marks,  registered
         service marks, service mark applications, and (i) all renewals thereof,
         (ii) all income, royalties,  damages and payments now and hereafter due
         and/or  payable  under and with  respect  thereto,  including,  without
         limitation,  payments  under all licenses  entered  into in  connection
         therewith and damages and payments for past or future  infringements or
         dilutions thereof,  (iii) the right to sue for past, present and future
         infringements and dilutions thereof,  and (iv) all of Borrower's rights
         corresponding  thereto  throughout  the  world  (all  of the  foregoing
         trademarks,  registered  trademarks  and  trademark  applications,  and
         service marks,  registered service marks and service mark applications,
         together with the items described in clauses (i)-(iv) in this paragraph
         4(a),  are  sometimes  hereinafter   individually  and/or  collectively
         referred to as the "Trademarks");

                  (b)  rights  under  or  interests  in  any  trademark  license
         agreements  or service  mark license  agreements  with any other party,
         whether  Borrower  is a licensee  or  licensor  under any such  license
         agreement,  together with any goodwill connected with and symbolized by
         any  such  trademark  license   agreements  or  service  marks  license
         agreements,  and the  right  to  prepare  for sale and sell any and all
         Inventory  now or  hereafter  owned by  Borrower  and now or  hereafter
         covered by such licenses (all of the foregoing are hereinafter referred
         to collectively as the "Licenses");  provided, that the foregoing grant
         of a security  interest  with  respect to Licenses  shall not include a
         security  interest in any License  under which  Borrower is a Trademark
         licensee  to the extent  that the grant by  Borrower  of such  security
         interest  is (i)  prohibited  by the  terms and the  provisions  of the
         written agreement,  document or instrument  creating or evidencing such
         License, or (ii) gives the licensor thereto the right to terminate such
         License in the event of the grant of a security  interest  with respect
         thereto.

                  5.  Restrictions  on Future  Agreements.  In  addition  to the
restrictions  provided in  paragraph  8,  Borrower  will not,  without the prior
written  consent  of  the  Majority  Lenders,  (i)  enter  into  any  agreement,
including, without limitation, any license agreement, which is inconsistent with
this Agreement, provided, however, that Borrower shall have the right to license
the use of the Trademarks in the ordinary  course of its business,  and Borrower
further agrees that it will not take any action,  and will use its  commercially
reasonable  efforts  not to permit any action to be taken by others,  including,
without limitation,  licensees,  or fail to take any action,  which would in any
material  adverse  respect  affect the  validity  or  enforcement  of the rights
transferred  to Agent under this Agreement or the rights  associated  with those
Trademarks or Licenses or (ii) except for transactions or Liens permitted


<PAGE>



under the Loan Agreement,  mortgage,  pledge, assign, encumber, grant a security
interest in, transfer, license or alienate any of the Trademarks.

                  6.  New  Trademarks  and  Licenses.  Borrower  represents  and
warrants  that (a) the  Trademarks  listed  on  Schedule  A  include  all of the
trademarks,  registered  trademarks,  trademark  applications,   service  marks,
registered  service marks and service mark  applications  now owned by Borrower,
and (b) no other  liens,  claims or  security  interests  have been  granted  by
Borrower to any other  Person in such  Trademarks  and  Licenses  other than the
Existing  Licenses and Permitted  Liens.  If, prior to the  termination  of this
Agreement, Borrower shall (i) obtain rights to any new Trademarks or (ii) become
entitled to the benefit of any Licenses or License  renewals,  the provisions of
paragraph 4 above shall  automatically  apply  thereto.  Borrower  shall give to
Agent written notice of events described in clauses (i) or (ii) of the preceding
sentence within 30 days after such occurrence.  Borrower hereby authorizes Agent
to modify this Agreement by amending Schedule A to include any future Trademarks
or Licenses under paragraph 4 above or under this paragraph 6.

                  7. Royalties.  Borrower hereby agrees that the use by Agent of
the Trademarks and the Licenses as authorized  hereunder in connection  with the
exercise of its  remedies  under  paragraph  16 or pursuant to Section 13 of the
Loan Agreement shall be coextensive with Borrower's  rights  thereunder and with
respect thereto and without any liability for royalties or other related charges
from Agent to Borrower.

                  8.  Right  to  Inspect;   Further   Assignments  and  Security
Interests.  At all  reasonable  times  (and at any time when an Event of Default
exists) upon reasonable advance notice to Borrower and at reasonable  intervals,
Agent may have access to, examine,  audit,  make copies (at Borrower's  expense)
and extracts from and inspect Borrower's  premises and examine Borrower's books,
records and operations  relating to the Trademarks and the Licenses,  including,
without  limitation,  Borrower's  quality control processes;  provided,  that in
conducting such inspections and examinations, Agent shall use reasonable efforts
not to  unnecessarily  disturb  the  conduct  of  Borrower's  ordinary  business
operations.  From and after the  occurrence  and during the  continuation  of an
Event of Default,  Borrower  agrees that Agent,  or a  conservator  appointed by
Agent,  shall have the right to establish  such  reasonable  additional  product
quality  controls  as  Agent  or such  conservator,  in its  sole  and  absolute
judgment,  may deem  necessary to assure  maintenance of the quality of products
sold by Borrower  under the  Trademarks  and the Licenses or in connection  with
which such Trademarks and Licenses are used.  Borrower agrees (i) not to sell or
assign its  interest  in, or grant any  license  under,  the  Trademarks  or the
Licenses without the prior and express written consent of the Majority  Lenders,
provided,  however, that Borrower shall have the right to license the use of the
Trademarks  in the  ordinary  course  of its  business,  and (ii) to the  extent
required to maintain the validity of the  Trademarks,  not to change the quality
of such  products  without  the  Majority  Lenders'  prior and  express  written
consent.

                  9.  Nature  and  Continuation  of Agent's  Security  Interest;
Termination of Agent's Security Interest.  This Agreement is made for collateral
security  purposes  only.  This  Agreement  shall create a  continuing  security
interest  in the  Trademarks  and  Licenses  and shall  remain in full force and
effect until the payment in full of all of the  Obligations  and  termination of
the  Loan  Agreement.  Upon  payment  in  full  of all of  the  Obligations  and
termination  of the Loan  Agreement,  this  Agreement  shall  terminate and upon
Borrower's request, Agent shall promptly execute and deliver to the Borrower, at
Borrower's expense, all termination statements and other instruments as may


<PAGE>



be necessary or desirable to evidence the termination of the Agent's security
interest in the Trademarks and the Licenses.

                  10.  Termination of Liens on Disposed  Trademarks or Licenses.
If any of the  Trademarks or Licenses  shall be sold,  transferred  or otherwise
disposed of by the Borrower in a transaction  permitted by the Loan Agreement or
this  Agreement,  then the Agent shall  execute and deliver to the  Borrower all
releases or other documents  described in Section 14.11(b) of the Loan Agreement
affecting such Trademark or License.

                  11. Duties of Borrower.  Borrower  shall have the duty, to the
extent desirable in the normal conduct of Borrower's business, to: (i) prosecute
diligently any trademark application or service mark application that is part of
the Trademarks pending as of the date hereof or thereafter until the termination
of this  Agreement,  and (ii) make  application for trademarks or service marks.
Borrower  further agrees (i) not to abandon any  Trademarks or Licenses,  except
those  Trademarks and Licenses that Borrower has  reasonably  determined are not
economically  material to the operation of Borrower's business without the prior
written  consent of the  Majority  Lenders  and (ii) to use its best  efforts to
maintain in full force and effect the Trademarks and Licenses, that are or shall
be necessary or economically  material to the operation of Borrower's  business.
Any  expenses  incurred  in  connection  with  the  foregoing  shall be borne by
Borrower.

                  12.  Agent's Right to Sue. From and after the  occurrence  and
during the continuation of an Event of Default,  Agent shall have the right, but
shall in no way be  obligated,  to bring  suit in its own  name to  enforce  the
Trademarks  and Licenses  and, if Agent shall  commence any such suit,  Borrower
shall,  at the request of Agent or the Majority  Lenders,  do any and all lawful
acts and execute any and all proper documents  required by Agent or the Majority
Lenders  in aid of such  enforcement.  Borrower  shall,  upon  demand,  promptly
reimburse Agent for all costs and expenses  incurred by Agent in the exercise of
its rights under this paragraph 12 (including,  without  limitation,  reasonable
fees and expenses of in-house and outside attorneys and paralegals for Agent).

                  13. Waivers.  Agent's failure, at any time or times hereafter,
to require  strict  performance  by Borrower of any provision of this  Agreement
shall not waive,  affect or  diminish  any right of Agent  thereafter  to demand
strict  compliance  and  performance  therewith  nor shall any course of dealing
between Borrower and Agent or any Lender have such effect.  No single or partial
exercise of any right  hereunder  shall  preclude any other or further  exercise
thereof  or  the  exercise  of  any  other  right.  None  of  the  undertakings,
agreements,  warranties,  covenants and representations of Borrower contained in
this Agreement  shall be deemed to have been suspended or waived by Agent unless
such  suspension  or waiver is in writing  signed by the  Majority  Lenders  and
directed to Borrower specifying such suspension or waiver.

                  14.  Severability.  Whenever possible,  each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
applicable  law, but the provisions of this Agreement are severable,  and if any
clause or provision shall be held invalid and  unenforceable in whole or in part
in any jurisdiction,  then such invalidity or unenforceability shall affect only
such clause or provision, or part hereof, in such jurisdiction, and shall not in
any manner  affect such clause or  provision in any other  jurisdiction,  or any
other clause or provision of this Agreement in any jurisdiction.



<PAGE>



                  15. Modification. This Agreement cannot be altered, amended or
modified  in any way,  except as  specifically  provided in  paragraphs  4 and 6
hereof or by a writing signed by the parties hereto.

                  16. Cumulative Remedies; Power of Attorney. From and after the
occurrence  and during the  continuation  of an Event of Default  under the Loan
Agreement,  Borrower  hereby  irrevocably  designates,  constitutes and appoints
Agent (and all Persons designated by Agent in its sole and absolute  discretion)
as Borrower's true and lawful attorney-in-fact,  and authorizes Agent and any of
Agent's designees,  in Borrower's or Agent's name, from and after the occurrence
of an Event of Default,  to (i)  endorse  Borrower's  name on all  applications,
documents, papers and instruments necessary or desirable for Agent in the use of
the Trademarks or the Licenses,  (ii) subject to the Existing Licenses,  assign,
pledge,  convey or otherwise  transfer  title in or dispose of the Trademarks or
the Licenses to anyone on commercially  reasonable  terms,  (iii) subject to the
Existing  Licenses,  grant or issue any exclusive or nonexclusive  license under
the Trademarks  or, to the extent  permitted,  under the Licenses,  to anyone on
commercially  reasonable terms, (iv) revise,  update, amend,  complete,  file or
record the Assignment of Trademark  Registrations  and Applications  attached as
Exhibit A hereto,  as Agent may determine to be necessary or desirable to assign
or otherwise  transfer the  trademarks  covered by this Agreement to any Person,
including,  without limitation,  Agent and (v) subject to the Existing Licenses,
take any other  actions with respect to the  Trademarks or the Licenses as Agent
deems reasonably  necessary to protect,  preserve or realize upon the Trademarks
or  Licenses  and the Liens  thereon.  Agent  shall take no action  pursuant  to
subparagraphs (i), (ii), (iii), (iv), or (v) of this paragraph 16 without taking
like action with respect to the entire goodwill of Borrower's business connected
with the use of, and symbolized by, such Trademarks or Licenses. Borrower hereby
ratifies all that such attorney  shall lawfully do or cause to be done by virtue
hereof.  This  power of  attorney  is  coupled  with an  interest  and  shall be
irrevocable  until all of the  Obligations  shall have been paid in full and the
Loan Agreement shall have been terminated. Borrower acknowledges and agrees that
this  Agreement  is not  intended to limit or restrict in any way the rights and
remedies  of Agent or the  Lenders  under  the Loan  Agreement,  but  rather  is
intended to facilitate the exercise of such rights and remedies.

                  Agent shall have, in addition to all other rights and remedies
given it by the terms of this Agreement,  all rights and remedies allowed by law
and the rights and remedies of a secured party under the Uniform Commercial Code
as enacted in any  jurisdiction  in which the  Trademarks or the Licenses may be
located or deemed located. Upon the occurrence and during the continuation of an
Event of Default and the election by Agent to exercise any of its remedies under
Section  9-504 or Section 9-505 of the Uniform  Commercial  Code with respect to
the Trademarks  and Licenses,  Borrower  agrees to assign,  convey and otherwise
transfer  title  in and to the  Trademarks  and the  Licenses  to  Agent  or any
transferee  of Agent and to execute and deliver to Agent or any such  transferee
all such agreements, documents and instruments (in addition to the Assignment of
Trademark Registration and Applications attached as Exhibit A hereto executed in
connection herewith) as may be necessary,  in Agent's  determination,  to effect
such  assignment,  conveyance  and transfer.  All of Agent's rights and remedies
with respect to the Trademarks and the Licenses,  whether established hereby, by
the Loan Agreement,  by any other  agreements or by law, shall be cumulative and
may be exercised singularly or concurrently.  Notwithstanding anything set forth
herein to the contrary,  it is hereby  expressly agreed that upon the occurrence
and during the  continuation  of an Event of Default,  Agent may exercise any of
the rights and remedies  provided in this Agreement,  the Loan Agreement and any
other Loan Document.


<PAGE>



                  17.  Successors and Assigns.  This Agreement  shall be binding
upon Borrower and its successors and assigns,  and shall inure to the benefit of
Agent and the Lenders and their  respective  successors and assigns.  Borrower's
successors and assigns shall include, without limitation, a receiver, trustee or
debtor-in-possession  to the extent that any of the foregoing are  considered to
be a  successor  or  assign of all for the  Borrower;  provided,  however,  that
Borrower  shall not  voluntarily  assign or transfer  its rights or  obligations
hereunder without the prior written consent of all Lenders.

                  18.  GOVERNING  LAW.  THIS  AGREEMENT  SHALL BE CONSTRUED  AND
ENFORCED  AND THE RIGHTS AND DUTIES OF THE  PARTIES  SHALL BE GOVERNED BY IN ALL
RESPECTS IN ACCORDANCE  WITH THE INTERNAL LAWS AND DECISIONS OF THE STATE OF NEW
YORK.

                  19.  Notices.  All notices or other communications hereunder 
shall be given in the manner and to the addresses set forth in the Loan 
Agreement.

                  20.  Agent's Duty.  Agent shall not have any duty with respect
to the  Trademarks  or the  Licenses.  Without  limiting the  generality  of the
foregoing,  Agent shall not be under any obligation to take any steps  necessary
to preserve rights in the Trademarks or the Licenses  against any other parties,
but may do so at its option,  and all expenses incurred in connection  therewith
shall be for the sole account of Borrower and added to the  Obligations  secured
hereby.

                  21.    Paragraph Titles.  The paragraph titles herein are for
convenience of reference only, and shall not affect in any way the
interpretation of any of the provisions hereof.

                  22. Execution in Counterparts.  This Agreement may be executed
in any  number of  counterparts  and by  different  parties  hereto in  separate
counterparts,  each of which when so executed  shall be deemed to be an original
and all of which taken together shall constitute one and the same agreement.

                  23. Further  Assurances.  Borrower hereby covenants and agrees
that it shall  execute and deliver such  documents and  instruments,  and hereby
authorizes  Agent,  in its own name or on behalf of  Borrower,  to  execute  and
deliver such documents and instruments,  at Borrower's  expense,  as Agent deems
necessary or proper to give effect to the provisions of this Agreement.

[Balance of page intentionally left blank.]



<PAGE>



                  IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the 14th day of September, 1998.


                                FORSTMANN APPAREL, INC.,
                                a New York corporation


                                By: /s/Rodney J. Peckham
                                   -----------------------
                                Name: Rodney J. Peckham
                                Title: EVP & CFO

ATTEST:


By: /s/Linda A. Harvey
    -------------------

                                 Accepted  and  agreed to as
                                 of   the    14th   day   of
                                 September, 1998, by:

                                 BANKAMERICA BUSINESS CREDIT, INC.


                                By: /s/Louis Alexander
                                   -----------------------
                                Name:Louis Alexander
                                Title:VP



<PAGE>





STATE OF NEW YORK   )
                    ) SS
COUNTY OF NEW YORK  )


                  The foregoing  Trademark  Security  Agreement was executed and
acknowledged  before me this 14th day of September,  1998, by Rodney J. Peckham,
personally  known to me to be the EVP & CFO of  Forstmann  Apparel,  Inc., a New
York corporation, on behalf of such corporation.


(SEAL)

                               /s/Katherine E. Tew
                               --------------------
                                  Notary Public
                                  NY County, NY
                               My commission expires:March 30, 2000





<PAGE>





                                    EXHIBIT A

           ASSIGNMENT OF TRADEMARK AND SERVICE MARK REGISTRATIONS AND
                                  APPLICATIONS

                  WHEREAS,  Forstmann  Apparel,  Inc.  ("Assignor"),  a New York
corporation  with an address at  [_________________]  has  adopted,  used and is
using certain  trademarks  and service marks listed on Schedule I annexed hereto
and has made applications to use certain  trademarks and service marks listed on
such  Schedule,  such Schedule  being made a part hereof (the  "Marks"),  all of
which are registered or filed in the United States Patent and Trademark Office.
                  NOW  THEREFORE,  for  good  and  valuable  consideration,  the
sufficiency and receipt of which is hereby acknowledged, Assignor hereby assigns
to
                                  all of its right, title and interest in and to
each of the Marks (except for any intent to use applications, and except for any
trademark  which is the subject of an intent to use  application,  in each case,
filed pursuant to Section 1(b) of the Lanham Act, 15 U.S.C. Section 15017, until
Borrower  (i) files  Amendment  to Allege Use or (ii) a  Statement  of Use under
Sections  1(c)  and  1(d) of the  Lanham  Act with  respect  to such  trademark)
together with the goodwill of the business  symbolized  by the Marks,  and their
respective federal registrations.


DATED: __________ __,


ATTEST:

--------------------
Name:                                 FORSTMANN APPAREL, INC.



                                       By:
                                      Name:
                                      Title:



<PAGE>
                LEASE SURRENDER AGREEMENT
                  AGREEMENT,  dated as of August 31, 1998,  between 1155 AVAMER
REALTY  CORP.,  a New York  corporation  having an office at 1155  Avenue of the
Americas, New York, New York 10036 ("Landlord") and FORSTMANN & COMPANY, INC., a
Georgia  corporation having an office at 1155 Avenue of the Americas,  New York,
New York 10036 ("Tenant").
                              W I T N E S S E T H:
          WHEREAS,  by that  certain  Lease  dated as of January  31,  1995 (the
"Original  Lease"),  as  amended  by a First  Amendment  to  Lease,  dated as of
December 27, 1995 (the Original  Lease,  as so amended,  the "Lease"),  Landlord
leased to Tenant the entire  fourth (4th) floor and a portion of the third (3rd)
floor in the building  known as 1155 Avenue of the Americas,  New York, New York
(the "Premises") on the terms and conditions set forth therein; and
                  WHEREAS, Landlord and Tenant simultaneously with the execution
of the Lease  entered  into a Lease  Takeover  Agreement  (the  "Lease  Takeover
Agreement")  with  respect to  Tenant's  leased  premises  at 1185 Avenue of the
Americas, New York, New York; and
                  WHEREAS,  by that certain  Sublease dated as of August 8, 1997
(the  "Sublease")  Tenant  subleased  to D.E.  Shaw & Co.,  L.P.,  as  sublessee
("Sublessee"),  a portion of the Premises  located on the third (3rd) floor (the
"Sublet Space");
                  WHEREAS, the Sublease has been cancelled and terminated,  such
cancellation  having been effected by a certain  agreement by and between Tenant
and Sublessee (the "Sublease
<PAGE>
Surrender Agreement"),  dated as of even date herewith under which the Sublessee
has  surrendered  all right title and  interest in and to the  Sublease  and the
Sublet Space,  and has executed such  documents as are necessary to allow Tenant
to prosecute a holdover  proceeding against Sublessee,  and to stay the delivery
to Tenant of possession of the Sublet Space until March 31, 1999 (such  Sublease
Surrender Agreement, including the exhibits thereto, being hereafter referred to
collectively as the "Sublease Surrender Documents");
                  WHEREAS,  Landlord  and Tenant  mutually  desire to cancel and
terminate the Lease as of December 31, 1998 or (if Tenant gives  written  notice
thereof to  Landlord  no later than  December  1, 1998)  January  31,  1999 (the
"Cancellation Date"), subject to the terms and conditions hereinafter set forth.
                  NOW,  THEREFORE,  in  consideration  of the  mutual  covenants
herein contained, the parties hereto hereby covenant and agree as follows:
                  1. Capitalized terms used, but not defined,  herein shall have
the meanings ascribed to them in the Lease.
                  2.       (a)      Effective as of the Cancellation Date,
Landlord shall assume all of Tenant's obligations under the
<PAGE>
Sublease and Tenant hereby  assigns to Landlord,  effective as of such Date, all
of Tenant's  right,  title and  interest in and to the  Sublease,  the  Sublease
Surrender  Agreement  referenced above,  along with all of Tenant's right, title
and  interest  in and to the Sublet  Surrender  Documents  and any rights of the
Tenant  thereunder,  including,  without  limitation,  the right to  prosecute a
holdover  proceeding  in  accordance  with the terms of the  Sublease  Surrender
Documents. The parties acknowledge that no further documentation is necessary or
required to effectuate the assignment and assumption  described in the preceding
sentence.
                                            (b)    In part consideration of
Landlord's  assumption  of  Tenant's  obligations  under  the  Sublease  and the
Sublease   Surrender   Documents   pursuant  to  Section  2(a),   Tenant  shall,
simultaneously with the execution of this Agreement, deliver the sum of $112,500
to Landlord's attorneys to be held in escrow until Landlord receives the consent
of its mortgagee to this Agreement as  contemplated  by Section 11(h) below.  In
the event that  Landlord  receives  such  consent and has given  written  notice
thereof to Tenant  (together  with a copy of  mortgagee's  consent),  Landlord's
attorneys  shall  release  the sum of  $112,500  to Landlord on the later of (i)
September  30,  1998 or (ii) that date  which is five (5)  business  days  after
Tenant receives such written notice from Landlord or Landlord's designee. In the
event,  however, that Landlord shall not receive its mortgagee's consent to this
Agreement within the Mortgagee
<PAGE>
Consent Period (as hereafter  defined) and this Agreement is cancelled by either
Landlord or Tenant pursuant to Section 11(h) below,  Landlord's  attorneys shall
return the $112,500 to Tenant. Landlord shall hold harmless and indemnify Tenant
from and  against any and all cost,  expense  (including  reasonable  attorneys'
fees) or liability  with respect to any and all claims of Sublessee  arising out
of, or in connection with, (i) the Sublease which relate to any time on or after
the Cancellation  Date, and (ii) the Sublease  Surrender  Documents whether such
claims arise prior to, on or after the  Cancellation  Date.  Unless Landlord and
Sublessee otherwise agree, Landlord shall pay to Sublessee, on behalf of Tenant,
$100,000 in part consideration for Sublessee's  surrender of the Sublet Space on
or before  March 31,  1999,  provided  Sublessee  vacates the Sublet Space on or
before  that  date and has paid all rent and  additional  rent due and  owing to
Landlord through that date in accordance with the Sublease Surrender Documents.
                  3. Effective as of the Cancellation  Date,  Tenant does hereby
surrender to Landlord  all of its right,  title and interest in and to the Lease
and  the  Premises,  together  with  all  non-moveable  fixtures,  improvements,
installations and appurtenances  therein which are required to be surrendered to
Landlord in accordance with the Lease, except as hereinafter provided. As of the
Cancellation  Date the Lease shall be canceled and  terminated and neither party
shall have any further rights or  obligations  thereunder or with respect to the
Premises, except as provided herein.
                  4. On or before the Cancellation Date, Tenant shall vacate the
Premises and  surrender the same to Landlord in vacant,  broom clean  condition,
free of all tenancies and occupancies  (except for the Sublease or the occupancy
of the Sublessee  thereunder),  in accordance  with the  provisions of the Lease
applicable  upon the  expiration of the term thereof,  together with all keys to
the Premises;  provided,  however,  that Tenant need not remove any  alterations
currently installed in the Premises, except as expressly provided in paragraph 6
below.
                  5. If  Tenant  fails to so vacate  the  Premises  and  deliver
possession   thereof  (subject  to  the  Sublease  and  the  Sublease  Surrender
Documents)  to Landlord on or before the  Cancellation  Date as provided  above,
then the Lease shall  nevertheless  automatically  terminate on the Cancellation
Date and  Landlord  may take all  steps  necessary  under the Lease or by law to
obtain  possession of the Premises.  Tenant hereby waives  service of any notice
required  under the Lease or by law and the service of a notice of petition  and
petition,  and Tenant  hereby  consents to the entry of an  immediate  and final
judgment of possession in favor of Landlord  against  Tenant in the  appropriate
Court or other forum with the  issuance and  execution of the warrant  forthwith
and agrees not to seek a stay of, nor  appeal,  any such  judgment,  issuance or
execution.
                  6.  Should  Tenant  fail or refuse to vacate  and  deliver  to
Landlord  the  Premises  (subject to the  Sublease  and the  Sublease  Surrender
Documents)  on the  Cancellation  Date,  because  Landlord's  damages  shall  be
difficult to ascertain under such  circumstances and because immediate  delivery
of  possession  of the  Premises  (subject  to the  Sublease  and  the  Sublease
Surrender  Documents)  on such  date is of the  essence  of  this  Agreement  to
Landlord,  Landlord,  in addition to having the right to institute  and maintain
summary proceedings or any other action or proceeding  available under the Lease
or this Agreement,  or at law or in equity, shall have the right to collect from
Tenant,  as and for  liquidated  damages,  one and one-half  (1.5) times for the
first 30 days after the  Cancellation  Date,  and two (2) times after such first
thirty (30) days,  the amounts which Tenant would have  otherwise paid as annual
rent and additional rent (computed on a daily basis based on a 365 day year) for
each and every day, or part  thereof,  that Tenant  remains in possession of the
Premises after the Cancellation Date. The foregoing shall not in any way permit,
or be deemed to authorize,  Tenant to remain in possession of the Premises after
the Cancellation Date.
                  7. Tenant shall on or before the Cancellation  Date (i) remove
all of  its  moveable  furniture,  furnishings,  trade  fixtures  and  equipment
("Tenant's Property") from the Premises, and (ii) remove all internal staircases
from the Premises, and in connection therewith, restore the floor slabs to their
condition  immediately  prior to the installation of such staircases  (including
the  reinstallation  of any previously  removed portions of the floor slab), and
shall  repair  any  damage  to the  Premises  and  the  Building  caused  by the
foregoing;  provided,  however, that Tenant may leave the internal staircases in
the Premises and not restore the floor slabs,  in which event,  Tenant shall pay
$7,500 to Landlord on December 1, 1998.  In the event that Tenant shall not have
fully performed its  obligations  set forth above on or before the  Cancellation
Date,  Landlord  may without  notice  after the  Cancellation  Date perform such
obligations  and dispose of Tenant's  Property as Landlord sees fit, all without
the incurrence of any liability to Tenant. If Landlord makes any expenditures or
incurs  any  obligations  for the  payment  of  money  in  connection  with  the
foregoing,  including,  but not  limited  to,  attorney's  fees in  instituting,
prosecuting or defending any action or proceeding,  such reasonable sums paid or
reasonable  obligations incurred shall be paid by Tenant to Landlord within five
(5) days of rendition of any bill or statement reasonably satisfactory to Tenant
and evidencing the expenditure or obligation made or incurred by Landlord.

                  8. All rent and additional  rent payable under the Lease shall
be apportioned as of the Cancellation Date. If the amount of any such additional
rent,  due  or  prepaid,  under  the  Lease  cannot  be  determined  as  of  the
Cancellation  Date,  Tenant  shall  remain  liable  for the  payment of any such
additional rent  attributable to the period prior to the  Cancellation  Date and
through and including the Cancellation  Date and Landlord shall refund to Tenant
any such  additional  rent prepaid by Tenant which is  attributable  to a period
after the Cancellation Date.
                  9.  Simultaneously  with the  execution  and  delivery of this
Agreement,  Landlord and Tenant shall execute a Stipu lation of Dismissal in the
form annexed hereto as Exhibit A dis missing with prejudice and without costs to
either party the ad versary proceeding Forstmann & Company,  Inc. v. 1155 Avamer
Realty Corp.,  Adv. Pro. No. 97-9206A,  pending in the United States  Bankruptcy
Court for the Southern  District of New York. The stipulation  will be placed in
escrow  with  Landlord's  attorneys.  If  Landlord  receives  the consent of its
mortgagee to this Agreement as contemplated by Section 11(h) below, and Landlord
gives written  notice  thereof to Tenant  (together  with a copy of  mortgagee's
consent),  the  Stipulation of Dismissal  shall be released to Landlord.  In the
event,  however, that Landlord shall not receive its mortgagee's consent to this
Agreement  within the Mortgagee  Consent Period and this Agreement is cancel led
by either Landlord or Tenant pursuant to Section 11(h) below,
<PAGE>
Landlord's attorneys shall return the Stipulation of Dismissal to Tenant.
                  10. As a material  inducement  to  Landlord to enter into this
Agreement,  Tenant hereby waives any and all existing and future claims  against
Landlord arising out of, or in connection with, the Lease Takeover Agreement, as
well as any and all existing  and future  claims under the Lease with respect to
the Work Allowance  payable by Landlord to Tenant under the Lease.  In addition,
Tenant shall hold harmless and  indemnify  Landlord from and against any and all
cost, expense  (including  attorneys' fees) or liability with respect to any and
all claims of any current or prior owner of the building known as 1185 Avenue of
the  Americas  arising  out  of,  or in  connection  with,  the  Lease  Takeover
Agreement,  except  for any such  claim  arising  out of or in  connection  with
negotiations or other  discussions or  communications  between  Landlord and the
1185  Landlord on or after  September  22, 1995 to which Tenant was not a party.
Landlord  agrees that it will not disclose the  provisions of this Section 10 to
the 1185 Landlord or have any further  negotiations or other communications with
the 1185  Landlord  regarding  the Lease  Takeover  Agreement  without the prior
consent of Tenant.
                  11. Tenant hereby  represents,  warrants and covenants that on
the date of execution and delivery hereof:
                             (a)  Tenant   owns  the  Lease  and  has  the  full
                  corporate right and power to enter into this Agreement;
                             (b) Tenant has not taken any action which shall, in
                  any manner,  impair the rights, title and interest of Landlord
                  in and  to the  Premises  except  for  the  Sublease  and  the
                  Sublease Surrender Documents;
                             (c)  Except  for  the  Sublease  and  the  Sublease
                  Surrender Documents,  Tenant has not encumbered the Lease, the
                  Premises or any of the fixtures,  improvements,  installations
                  and  appurtenances  in  and  to  the  Premises  by  any  prior
                  transfer, assignment,  mortgage, pledge or lien and it has not
                  taken any  action  which  could  limit its right to cancel and
                  terminate  the Lease and  surrender  the  Premises as provided
                  herein;
                             (d) no one,  other than Tenant and  Sublessee,  has
                  acquired,  through  or  under  Tenant,  any  right,  title  or
                  interest  in or to the  Lease  or the term or  estate  thereby
                  granted or in or to the Premises.
                             (e)  Tenant  is duly  incorporated  in the State of
                  Georgia  and  authorized  to do  business  in the State of New
                  York;  and the person  executing  this  Agreement on behalf of
                  Tenant is an  officer  of Tenant,  and such  officer  was duly
                  authorized to sign and execute this Agreement.
                             (f) Tenant  does not  require  the  approval of the
                  United States  Bankruptcy  Court for the Southern  District of
                  New York with respect to its  bankruptcy,  Case No. 95 B 44190
                  (JLG),   to  enter   into  this   Agreement   or  to  pay  any
                  consideration    under   this    Agreement.    The   foregoing
                  representations and warranties shall be true and complete as 
                  of the  Cancellation  Date as a condition  precedent to the
                  performance of Landlord's obligations hereunder.
                  Landlord hereby represents, warrants and covenants that on the
date of execution and delivery thereof:
                             (g)  Landlord  owns the  Premises  and has the full
                  corporate right and power to enter into this Agreement
                             (h) Landlord will seek the consent of its mortgagee
                  to enter  into the  Agreement,  and if  Landlord  is unable to
                  obtain  such  consent  within  thirty  (30) days from the date
                  hereof  (such  thirty  (30) day  period  being the  "Mortgagee
                  Consent  Period"),  either  Landlord or Tenant may cancel this
                  Agreement.
                             (i) Landlord is duly incorporated and authorized to
                  do business in the State of New York; and the person executing
                  this  Agreement  on  behalf  of  Landlord  is  an  officer  of
                  Landlord,  and such  officer was duly  authorized  to sign and
                  execute this  Agreement.  The  foregoing  representations  and
                  warranties shall be true and complete as of the  Cancellation
                  Date as a condition  precedent to the performance of Tenant's 
                  obligations hereunder.
                  12.   Landlord   hereby   accepts  said   surrender,   and  in
consideration  of said  surrender  by Tenant  and of the  acceptance  thereof by
Landlord, and provided Tenant so vacates and delivers possession of the Premises
(subject to the Sublease and the Sublease  Surrender  Documents)  to Landlord as
provided  herein,  and otherwise  complies with all the terms of this Agreement,
Tenant and Landlord do hereby mutually  release each other, and their respective
successors and assigns, of and from all claims,  demands,  actions and causes of
action of every kind and nature whatsoever arising out of the Lease, except that
nothing herein contained shall be deemed to constitute a release or discharge of
Tenant with  respect to (i) third party  claims with respect to the Lease or the
Premises  (including  without limitation any claims by Sublessee relating to any
time prior to the Cancellation  Date), (ii) any obligation or liability incurred
under the Lease which remains  outstanding and  unsatisfied on the  Cancellation
Date, including, but not limited to, any rents, additional rents, escalation and
other charges then due or thereafter becoming due under the Lease for any period
up to and including the Cancellation  Date and (iii) any obligation or liability
under this Agreement.
                  13. Tenant represents,  covenants and warrants that it has had
no dealings or  communications  with any broker or agent in connection with this
Agreement  other than  Cushman &  Wakefield,  Inc.  (the  "Broker"),  and Tenant
further covenants and agrees to pay all commissions and other  compensation,  if
any,  payable to the  Broker in  connection  herewith.  Tenant  shall  indemnify
Landlord and hold Landlord  harmless from and against any and all cost,  expense
(including  attorneys' fees) or liability for any  compensation,  commissions or
charges  claimed by any broker or agent  engaged  by Tenant  (including  without
limitation  the  Broker)  with  respect  to this  Agreement  or the  negotiation
thereof.
                  14.  Landlord  represents,  covenants and warrants that it has
had no dealings or  communications  with any broker or agent in connection  with
this Agreement other than the Broker,  and Landlord further covenants and agrees
to pay all commissions  and other  compensation,  if any,  payable to any broker
whom Landlord  engaged in connection  herewith  other than the Broker.  Landlord
shall  indemnify  Tenant and hold Tenant  harmless and against any and all cost,
expense   (including   attorneys'  fees)  or  liability  for  any  compensation,
commissions or charges claimed by any broker or agent engaged by Landlord (other
than the Broker) with respect to this Agreement or the negotiation thereof.
                  15.  Provided  that Tenant shall fully and  faithfully  comply
with all of the terms,  provisions,  covenants and conditions of this Agreement,
the Security  Deposit  currently held by Landlord shall be returned to Tenant on
the  Cancellation  Date and  surrender of entire  possession  of the Premises to
Landlord in accordance with the terms of this Agreement.
                  16. The representations, warranties and covenants contained in
this  Agreement  shall  survive and inure to the benefit of and be binding  upon
Landlord and Tenant and their respective successors and assigns.
                  17. Any notices,  demands or  instructions  which  Landlord or
Tenant may be required or  permitted  to give under this  Agreement  shall be in
writing addressed as follows:
                  If to Landlord:

                            1155 AVAMER Realty Corp.
                           1133 Avenue of the Americas
                            New York, New York 10036
                           Attn: Mr. Douglas D. Durst

                  With a copy sent by facsimile to:

                             Richards & O'Neil, LLP
                                885 Third Avenue
                            New York, New York 10022
                          Attn: Robert M. Safron, Esq.
                             Fax No. (212) 750-9022

                  If to Tenant:

                            Forstmann & Company, Inc.
                           1155 Avenue of the Americas
                            New York, New York 10036
                                      Attn:

                  With a copy sent by facsimile to:

                              Debevoise & Plimpton
                                875 Third Avenue
                            New York, New York 10022
                         Attn: George E.B. Maguire, Esq.
                             Fax no. (212) 909-6836

Such notice,  demand or instructions,  shall be deemed  sufficiently or properly
given if: (a)  addressed to Landlord or Tenant as specified  above and delivered
to Landlord or Tenant at their above respective offices;  and (b) sent by fax on
that same day to the receiving  party's  attorneys at the  facsimile  number set
forth  above.  The time of the giving of such a notice,  demand or  instructions
shall be deemed  to be the time when the same is so  delivered  to  Landlord  or
Tenant, whichever the case may be.
                  18. Tenant shall pay any and all real estate transfer taxes of
any kind or nature  whatsoever  arising in  connection  with the  execution  and
delivery of this Agreement  and/or the acceptance  hereof by Landlord.  Landlord
agrees to  cooperate  with Tenant in  connection  with the filing of any returns
with  respect to such taxes and to notify  Tenant  promptly  upon receipt of any
notice of demand with respect to such taxes.
                  19.  All  prior  agreements  and  understandings  between  the
parties  hereto are merged  herein and this  Agreement  shall not be modified or
terminated orally.
                  20. This Agreement shall be deemed made in and governed by the
laws of the State of New York.
                  21.  Notwithstanding  anything  herein to the  contrary,  this
Agreement  is  submitted  to  Tenant on the  understanding  that it shall not be
considered  an offer and shall not bind Landlord in any way until (i) Tenant has
duly  executed and delivered  duplicate  originals to Landlord and (ii) Landlord
has executed and  unconditionally  delivered one of said originals to Tenant and
the mortgagee  (if  required)  and lessor of the Over Lease (if required)  shall
consent thereto in writing.
                  22. This  Agreement  may not be modified  orally but only by a
writing signed by the party against whom enforcement thereof is sought.  Waivers
of any terms or conditions of this Agreement  must be in writing,  signed by the
party  against  whom such waiver is sought to be  enforced.  No waiver by either
party  of any  breach  hereunder  shall  be  deemed  a  waiver  of any  other or
subsequent breach.
                  IN WITNESS  WHEREOF,  Landlord and Tenant have  executed  this
Agreement as of the day and year first above written.

1155 AVAMER REALTY CORP.




By:/s/Douglas Durst
   ---------------------
   Name: Douglas Durst
   Title: President


FORSTMANN & COMPANY, INC.



By: /s/ Rodney J. Peckham
   ------------------------
   Name: Rodney J. Peckham
   Title: EVP & CFO

AGREED AND ACCEPTED (as to the provisions of Articles 2 and 9):

RICHARDS & O'NEIL, LLP



By:/s/ Robert M. Safron
   ---------------------
   Partner:


<PAGE>


                                                     EXHIBIT A

UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
-----------------------------------X
In re:                             :
FORSTMANN & COMPANY, INC.,         :
                                   :
Debtor.                            :         Chapter 11
                                   :         Case No. 95 B 44190 (JLG)
-----------------------------------X
FORSTMANN & COMPANY, INC.,         :
                                   :
Plaintiff,                         :         Adv. Pro. No. 97-9206A
                                   :         STIPULATION OF DISMISSAL
- against -                        :
                                   :
1155 AVAMER REALTY CORP.,          :
                                   :
Defendant.                         :
-----------------------------------X
                  It is hereby stipulated and agreed that the within
adversary proceeding be, and it hereby is, dismissed with
prejudice and without costs to either party.
Dated:            New York, New York
                  July __, 1998

DEBEVOISE & PLIMPTON                       RICHARDS & O'NEIL, LLP

By:___________________________             By:________________________
   George E. B. Maguire (GM3218)              Edward M. Fox (EF1619)
Attorneys for Plaintiff                    Attorneys for Defendant
Forstmann & Company, Inc.                  1155 Avamer Realty
875 Third Avenue                           885 Third Avenue
New York, New York 10022                   New York, New York 10022-4873
(212) 909-6000                               (212) 207-1200

SO ORDERED:

-------------------------------
U.S.B.J.




                                                                      Exhibit 15
INDEPENDENT ACCOUNTANTS' REVIEW REPORT

Board of Directors and Shareholders
Forstmann & Company, Inc.:

We have reviewed the accompanying consolidated condensed financial statements of
Forstmann & Company, Inc. (the "Company") for the following periods:


                         Period(s) Covered
Financial Statements     Reorganized Company              Predecessor Company
--------------------     -------------------              -------------------
Consolidated Condensed   August 2, 1998
Balance Sheet

Consolidated Condensed   Thirteen and  Thirty-Nine        Period  from
Statement of Operations  Weeks Ended August 2, 1998       November 4, 1996 to 
                         and period from July 23, 1997    July 22, 1997 and
                         to August 3, 1997                period from July 22,
                                                          1997 and May 4, 1997 
                                                          to July 22, 1997

Consolidated Condensed   Thirty-Nine  Weeks  Ended        Period  from  
Statement of Cash Flows  August 2, 1998 and period        November 4, 1996 to 
                         from July 23, 1997               July 22, 1997
                         to August 3, 1997

Consolidated Condensed   Thirty-Nine Weeks Ended
Statement of Changes in  August 2, 1998
Shareholders' Equity

These financial statements are the responsibility of the Company's management.

We conducted our review in accordance with standards established by the American
Institute  of  Certified  Public  Accountants.  A review  of  interim  financial
information consists principally of applying analytical  procedures to financial
data, and making  inquiries of persons  responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with  generally  accepted  auditing  standards,  the  objective  of which is the
expression of an opinion  regarding the financial  statements  taken as a whole.
Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material  modifications that should
be made to such consolidated  condensed  financial  statements for them to be in
conformity with generally accepted accounting principles.


We have  previously  audited,  in accordance  with generally  accepted  auditing
standards,  the  balance  sheet of the  Company as of  November  2, 1997 and the
related statements of operations,  shareholders'  equity, and cash flows for the
period from November 4, 1996 to July 22, 1997 of the Predecessor Company and the
period from July 23, 1997 to November 2, 1997 of the  Reorganized  Company  (not
presented  herein);  and in our report dated  December 19, 1997, we expressed an
unqualified  opinion  on  those  financial  statements.   In  our  opinion,  the
information set forth in the accompanying condensed balance sheet as of November
2, 1997 is fairly stated, in all material  respects,  in relation to the balance
sheet from which it has been derived.


Deloitte & Touche LLP
Atlanta, Georgia
September 4, 1998 (September 14, 1998 as to Note 8)