<PAGE>

ITEM 14

                                  EXHIBIT 10.7
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                                                                  EXECUTION COPY

                   FIRST AMENDMENT, CONSENT AND LIMITED WAIVER

                                       TO

                                CREDIT AGREEMENT

            THIS FIRST AMENDMENT AND CONSENT TO CREDIT AGREEMENT dated as of
August 23, 1996 (this "First Amendment") is entered into among Muehlstein
Holding Corporation, a Delaware corporation ("Holdings"), H. Muehlstein & Co.,
Inc., a New York corporation (the "Company"), Pegasus Polymers International
Inc., a Connecticut corporation ("Pegasus"), Muehlstein International, Ltd., a
New York corporation ("Muehlstein International"), H. Muehlstein & Co. (Canada)
Limited, an Ontario corporation (the "Canadian Borrower"; and together with the
Company, Pegasus and Muehlstein International, the "Borrowers"), the financial
institutions listed on the signature pages hereof (collectively referred to
herein, together with their respective successors and assigns, as the "Lenders"
and individually as a "Lender"), Citicorp USA, Inc., a Delaware corporation
("Citicorp"), in its capacity as agent for the Lenders and the "Issuing Banks"
(as defined in the Credit Agreement referred to below) (with its successors in
such capacity, the "Agent"), and Citibank Canada, a Canadian chartered bank
("Citibank Canada"), in its capacity as agent for the "Canadian Lenders" and the
"Canadian Issuing Banks" (in each case as defined in the Credit Agreement
referred to below) (with its successors in such capacity, the "Canadian Agent")
and relates to that certain Credit Agreement dated as of February 9, 1996 (as
supplemented or otherwise modified from time to time prior to the "First
Amendment Effective Date" (as defined in Section 2.1(i) below), the "Credit
Agreement"), among Holdings, the Borrowers, the Lenders, the Issuing Banks, the
Agent and the Canadian Agent.

                              W I T N E S S E T H:

            WHEREAS, the Company plans to form a two new Wholly Owned
Subsidiaries, Muehlstein Financial Corporation, a Delaware corporation
("Finsub"), and Polymers International Financial Corporation, a Delaware
corporation ("Finsub2");

            WHEREAS, the Company, Muehlstein International, Finsub and Finsub2
plan to enter into the Permitted Receivables Transaction Documents (as defined
in Section 2.1(v) below);

            WHEREAS, proceeds of the sale of Receivables by the Company and
Muehlstein International under the Permitted Receivables Transaction Documents
(i) if such proceeds are in the form of cash, shall constitute Net Cash Proceeds
and shall be


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applied as a mandatory prepayment to the outstanding Revolving Loans (without a
corresponding reduction of the Revolving Credit Commitments other than the
reduction in Revolving Credit Commitments effected by this First Amendment) or
(ii) if such proceeds are in the form of promissory notes, shall be pledged to
the Agent, for the benefit of the "Secured Parties" under (and as defined in)
the respective Borrower Pledge Agreements to which the Company and Muehlstein
International are a party;

            WHEREAS, Pegasus and Finsub2 plan to enter into the Multicurrency
Loan Documents (as defined in Section 2.1(o) below);

            WHEREAS, during the period that the Multicurrency Loan Documents are
in effect, the loan facility evidenced by the Multicurrency Loan Documents shall
replace the Multicurrency Facility under the Credit Agreement;

            WHEREAS, the Borrowers have requested that (i) the Lenders approve
the Permitted Receivables Financing Program and the execution by the Company,
Muehlstein International, Finsub and Finsub2 of the Permitted Receivables
Transaction Documents, (ii) the Agent release its Liens on the Receivables sold
from time to time pursuant to the Permitted Receivables Transaction Documents,
(iii) the Agent and the Canadian Agent enter into the Permitted Receivables
Intercreditor Agreement (as defined in Section 2.1(t) below), (iv) the Lenders
approve the execution by Pegasus and Finsub2 of the Multicurrency Loan Documents
and (v) the Agent enter into the Multicurrency Intercreditor Agreement (as
defined in Section 2.1(n) below;

            WHEREAS, the Company and the other Borrowers have requested the
Lenders to amend the Credit Agreement (i) to decrease the Multicurrency
Commitment from $35,000,000 to zero, (ii) to decrease the aggregate Revolving
Credit Commitments from $125,000,000 to $45,000,000 , (iii) to decrease the
aggregate US Commitment from $80,000,000 to $35,000,000 and (iv) to effect other
amendments, all as more fully described herein;

            NOW, THEREFORE, in consideration of the above premises, Holdings,
the Borrowers, the Lenders, the Agent and the Canadian Agent agree as follows:

            1. Definitions. Capitalized terms used and not otherwise defined
herein have the meanings assigned to them in the Credit Agreement.

            2. Amendments to the Credit Agreement. Upon the "First Amendment
Effective Date" (as defined in Section 2.1(i) below), the Credit Agreement is
hereby amended as follows:

                  2.1 Section 1.01. Section 1.01 of the Credit Agreement is
amended as follows:


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<PAGE>

                  (a) The following definition of "Average Liquidity" is added
      in proper alphabetical order:

                        "Average Liquidity" means, for any period, the sum of
            (i) average aggregate Revolving Credit Availability under all Credit
            Facilities for such period, plus (ii) the excess, if any, of (A) the
            average Net Receivables Balance for such period over (B) the
            Required Net Receivables Balance for such period, plus (iii) the
            average Revolving Credit Availability for such period under the
            Credit Agreement referred to in clause (i) of the definition of
            "Multicurrency Loan Documents".

                  (b) The definition of "Borrower Pledge Agreements" is deleted
      in its entirety and the following definition is substituted in lieu
      thereof:

                        "Borrower Pledge Agreements" means (i) the Pledge
            Agreement dated as of the Closing Date by and between the Company
            and the Agent, (ii) the Pledge Agreement dated as of the Closing
            Date by and between Muehlstein International and the Agent, (iii)
            the Pledge Agreement dated as of the First Amendment Effective Date
            by and between Pegasus and the Agent, in each case in substantially
            the form of Exhibit C, and (iv) all other pledge agreements executed
            by any Borrower in favor of the Agent in connection with the
            transactions contemplated hereby, as each of the same may be
            amended, supplemented or otherwise modified from time to time.

                  (c) The definition of "Collateral" is amended to delete the
      words "the initial sale" therein and to substitute in lieu thereof the
      words "all sales";

                  (d) The following definition of "Early Amortization Event" is
      added in proper alphabetical order:

                        "Early Amortization Event" is defined on Schedule
            1.01.7.

                  (e) The definition of "Eligible Inventory" is amended to add
      the following phrase at the end of the parenthetical phrase before clause
      (i) therein: "or which constitutes Returned Goods during any period prior
      to which a Trust Early Amortization Event under Section 9.01(e) of the
      Permitted Receivables Pooling and Servicing Agreement, or an Early
      Amortization Event under the Series 1996-1 Supplement, shall have occurred
      and be continuing".

                  (f)  The definition of "Finsub" is deleted in its


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      entirety and the following definition is substituted in lieu
      thereof:

                        "Finsub" means Muehlstein Financial Corporation, a
            Delaware corporation and a Wholly Owned Subsidiary of the Company.

                  (g) The following definition of "Finsub2" is added in proper
      alphabetical order:

                        "Finsub2" means Polymers International Financial
            Corporation, a Delaware corporation and Wholly Owned Subsidiary of
            Pegasus.

                  (h) The following definition of "First Amendment" is added in
      proper alphabetical order:

                        "First Amendment" means the First Amendment, Consent and
            Limited Waiver to Credit Agreement dated as of August 23, 1996,
            among Holdings, the Borrowers, the Lenders, the Agent and the
            Canadian Agent.

                  (i) The following definition of "First Amendment Effective
      Date" is added in proper alphabetical order:

                        "First Amendment Effective Date" has the meaning set
            forth in the First Amendment.

                  (j) The definition of "Intercreditor Agreement" is deleted in
      its entirety and the following definition of "Intercreditor Agreements" is
      substituted in lieu thereof:

                        "Intercreditor Agreements" means the Multicurrency
            Intercreditor Agreement, the Permitted Receivables Intercreditor
            Agreement and the Term Loan Intercreditor Agreement, and
            "Intercreditor Agreement" means any of them.

                  (k) The following definition of "Liquidity Event" is added in
      proper alphabetical order:

                        "Liquidity Event" means any time after which the Average
            Liquidity becomes less than $5,000,000 for a period of any five (5)
            consecutive Business Days or less than $1,500,000 for a period of
            any two (2) consecutive Business Days. Solely for purposes of this
            definition, (i) Revolving Credit Availability for the U.S. Facility
            shall be calculated without giving effect to the limitation imposed
            by clause (i)(A)(1) of the definition of Maximum Revolving Credit
            Amount and (ii) Revolving Credit Availability for the Canadian
            Facility shall be calculated without giving effect to the limitation
            imposed by clause (iii)(A)(1) of the


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            definition of Maximum Revolving Credit Amount.

                  (l) The definition of "Loan Documents" is amended (i) to
      delete in its entirety the reference therein to "Intercreditor Agreement"
      and substitute in lieu thereof "Intercreditor Agreements" and (ii) to add
      the following phrase before the period at the end of the last sentence
      thereof: "or the Multicurrency Loan Documents".

                  (m) The definition of "Multicurrency Commitment" is amended to
      add the following proviso before the period at the end of such definition:
      "provided, further, however, on and after the First Amendment Effective
      Date, the Multicurrency Commitment shall be zero.

                  (n) The definition of "Multicurrency Facility" is amended to
      add the phrase "from the Closing Date to the First Amendment Effective
      Date" immediately following the reference therein to "Multicurrency
      Borrower".

                  (o) The following definition of "Multicurrency Intercreditor
      Agreement" is added in proper alphabetical order:

                        "Multicurrency Intercreditor Agreement" means the Letter
            Agreement dated as of the First Amendment Effective Date from the
            Agent and the Canadian Agent to the Multicurrency Lender, as the
            same may be amended, supplemented or otherwise modified from time to
            time.

                  (p) The following definition of "Multicurrency Lender" is
      added in proper alphabetical order:

                        "Multicurrency Lender" means Citibank, N.A., in its
            capacity as the lender under the Multicurrency Loan Documents, and
            its successors in such capacity.

                  (q) The following definition of "Multicurrency Loan Documents"
      is added in proper alphabetical order:

                        "Multicurrency Loan Documents" means (i) the Credit
            Agreement dated as of the First Amendment Effective Date between
            Pegasus and the Multicurrency Lender, (ii) the Guaranty dated as of
            the First Amendment Effective Date executed by Finsub2 in favor of
            the Multicurrency Lender, (iii) the Pledge Agreement dated as of the
            First Amendment Effective Date executed by Finsub2 in favor of the
            Multicurrency Lender and (iv) all other instruments, agreements and
            written Contractual Obligations entered into in connection with any
            of the foregoing, in each case as the same may be amended,
            supplemented or otherwise modified from time to time.


                                      -6-
<PAGE>

                  (r) The definition of "Net Cash Proceeds" is amended to add
      the parenthetical phrase "(but including proceeds of all sales under the
      Permitted Receivables Financing Program)" immediately following the phrase
      "other than sales, assignments and other dispositions of Property between
      the Company and Wholly Owned Subsidiaries of the Company to the extent
      permitted hereunder".

                  (s) The following definition of "Net Receivables Balance" is
      added in proper alphabetical order:

            "Net Receivables Balance" is defined on Schedule 1.01.7.

                  (t) The definition of "Permitted Receivables Financing
      Program" is deleted in its entirety and the following definition is
      substituted in lieu thereof:

                        "Permitted Receivables Financing Program" means the
            receivables financing program evidenced by the Permitted Receivables
            Transaction Documents.

                  (u) The definition of "Permitted Receivables Financing Program
      Trustee" is added in proper alphabetical order:

                        "Permitted Receivables Financing Program Trustee" means
            Bankers Trust Company, not in its individual capacity but solely as
            trustee of the Muehlstein Trade Receivables Master Trust, together
            with its successors and assigns in such capacity.

                  (v) The following definition of "Permitted Receivables
      Intercreditor Agreement" is added in proper alphabetical order:

                        "Permitted Receivables Intercreditor Agreement" means
            the Intercreditor Agreement dated as of the First Amendment
            Effective Date among Citicorp North America, Inc., as Program Agent,
            Finsub, the Company, Bankers Trust Company, as Trustee, the Agent,
            the Canadian Agent, Finova and Ambac Indemnity Corporation, as the
            same may be amended, supplemented or otherwise modified from time to
            time.

                  (w) The following definition of "Permitted Receivables Pooling
      and Servicing Agreement" is added in proper alphabetical order:

                        "Permitted Receivables Pooling and Servicing Agreement"
            means the Pooling and Serving Agreement dated as of the First
            Amendment Effective Date among



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<PAGE>

            Finsub, the Company and Bankers Trust Company, as trustee, as the
            same may be amended, supplemented or otherwise modified from time to
            time.

                  (x) The definition of "Permitted Receivables Transaction
      Documents" is deleted in its entirety and the following definition is
      substituted in lieu thereof:

                        "Permitted Receivables Transaction Documents" means the
            Permitted Receivables Pooling and Servicing Agreement and the other
            agreements, documents and instruments set forth on Schedule 1.01.7
            and all other instruments, agreements and written Contractual
            Obligations entered into in connection with any of the foregoing, in
            each case as the same may be amended, supplemented or otherwise
            modified from time to time.

                  (y) The following definition of "Required Net Receivables
      Balance" is added in proper alphabetical order:

                        "Required Net Receivables Balance" is defined on
            Schedule 1.01.7.

                  (z) The following definition of "Returned Goods" is added in
      proper alphabetical order:

                        "Returned Goods" means all right, title and interest of
            the Company, Muehlstein International or Finsub, as applicable, in
            and to returned, repossessed or foreclosed goods and/or merchandise.

                  (aa) The definition of "Revolving Credit Commitment" is
      amended to delete the Dollar amount "$125,000,000" and to substitute in
      lieu thereof the Dollar amount "$45,000,000".

                  (bb) The following definition of "Series 1996-1 Supplement" is
      added in proper alphabetical order:

                        "Series 1996-1 Supplement" means the Series 1996-1
      Supplement to the Permitted Receivables Pooling and Servicing Agreement,
      as such supplement may be amended, supplemented or otherwise modified from
      time to
      time.

                  (cc) The following definition of "Series 1996-2 Certificate"
      is added in proper alphabetical order:

                        "Series 1996-2 Certificate" means the Series 1996-2
            Certificate issued pursuant to the Series 1996-2 Supplement to the
            Permitted Receivables Pooling and Servicing Agreement.



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<PAGE>

                  (dd) The following definition of "Term Loan Intercreditor
      Agreement" is added in proper alphabetical order:

                        "Term Loan Intercreditor Agreement" means the
            Intercreditor Agreement dated as of the Closing Date between Finova
            and the Agent, as the same may be amended, supplemented or otherwise
            modified from time to time.

                  (ee) The definition of "Transaction Documents" is amended to
      add the phrase ", the Permitted Receivables Transaction Documents, the
      Multicurrency Loan Documents," immediately following the reference therein
      to "the Finova Documents".

                  (ff) The following definition of "Trust Early Amortization
      Event" is added in proper alphabetical order:

                        "Trust Early Amortization Event" is defined on Schedule
            1.01.7.

                  (gg) The definition of "U.S. Commitment" is amended to delete
      the Dollar amount "$125,000,000" and to substitute in lieu thereof the
      Dollar amount "$45,000,000".

                  2.2 Section 2.01(a)(ii). Section 2.01(a)(ii) of the Credit
Agreement is hereby amended to delete the reference therein to "Revolving Credit
Termination Date" and to substitute in lieu thereof "First Amendment Effective
Date".

                  2.3 Section 2.01(b). Section 2.01(b) of the Credit Agreement
is hereby amended to add the following parenthetical phrase immediately
following the reference to "Revolving Credit Termination Date" in the first
sentence thereof: "(the First Amendment Effective Date, in the case of the
Multicurrency Facility)".

                  2.4 Section 2.01(g). Section 2.01(g) of the Credit Agreement
is hereby amended to delete the second sentence thereof in its entirety and to
substitute in lieu thereof the following:

            "Proceeds of U.S. Loans and of Swing Loans under the U.S. Facility
            shall be used to provide for ongoing working capital needs in the
            ordinary course of the business of the Company and its Subsidiaries
            and for other lawful general corporate purposes not prohibited
            hereunder, including, without limitation, (x) capital contributions
            from the Company and Muehlstein International to Finsub permitted by
            Section 9.07(b), and (y) capital contributions from Pegasus to
            Finsub2 permitted by Section 9.07(b)."



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<PAGE>

                  2.5 Section 3.01(b). Section 3.01(b) of the Credit Agreement
is hereby amended as follows:

                  (a)   Clause (iii) thereof is amended to delete the
      second sentence therein in its entirety.

                  (b) Clause (iv) thereof is amended to delete the first
      sentence therein in its entirety and to substitute in lieu thereof the
      following:

            "The Revolving Credit Commitments shall be permanently
            reduced to $45,000,000 as of the First Amendment
            Effective Date."

                  2.6 Section 3.05(c)(iii). Section 3.05(c)(ii) of the Credit
Agreement is hereby amended to delete the portion of the second sentence thereof
beginning with clause (C) and to substitute in lieu thereof the following:

            "(C) the Agent shall honor any request made by the Multicurrency
            Borrower and the Canadian Agent shall honor any request made by the
            Canadian Borrower, as applicable, and received by the Agent or the
            Canadian Agent, as applicable, no later than 12:00 noon (London or
            Toronto time, as applicable), at least two (2) Business Days prior
            to the date of such transfer (in the case of the Multicurrency
            Borrower), to transfer funds from any such Cash Collateral Account
            (whether or not any Multicurrency Loan or Canadian Loan, as the case
            may be, is outstanding) to (x) a Disbursement Account of such
            Borrower, and such funds shall be transferred to such Disbursement
            Account of the Canadian Borrower on the same Business Day or of the
            Multicurrency Borrower on the following Business Day, or (y) in the
            case of any Cash Collateral Account into which proceeds of
            Receivables of the Multicurrency Borrower have been deposited, the
            Multicurrency Lender and its successors, for application to amounts
            owing under the Multicurrency Loan Documents, and such funds shall
            be so transferred on the following Business Day, provided that such
            request shall in the case of clause (x) or (y) be made pursuant to a
            signed Notice of Withdrawal and the conditions set forth therein
            shall have been met as of the date of such request and that the
            intended use of such funds shall be consistent with Section 2.01(g)
            (assuming for such purpose that such funds are proceeds of Revolving
            Loans), and provided, further, that after giving effect to any such
            withdrawal by the Canadian Borrower, the Revolving Credit
            Availability under the Canadian Facility is greater than zero, and
            provided, further, that the Agent shall not be required to honor any
            such request


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<PAGE>

            made by the Multicurrency Borrower at any time after a Liquidity
            Event has occurred.

                  2.7 Section 4.03(b). Section 4.03(b) of the Credit Agreement
is hereby amended to insert the following proviso immediately before the period
at the end of the first sentence of such subsection:

            ", provided that, if the earnings results of Holdings and its
            Subsidiaries for Fiscal Year 1996, as reflected in the audited
            financial statements delivered by Holdings to the Agent and the
            Lenders pursuant to Section 7.01(b) with respect such Fiscal Year,
            exceed in all respects the applicable forecasts for Fiscal Year set
            forth in the Initial Projections, then, from and after the first day
            of the calendar month immediately succeeding the calendar month in
            which such financial statements shall have been so delivered, the
            Unused Commitment Fee shall accrue at a rate of three-eighths of one
            percent (0.375%) per annum"

                  2.8 Section 6.01(c). Section 6.01(c) of the Credit Agreement
is hereby amended to delete each reference to the phrase "as of the Closing
Date" therein and to substitute in lieu thereof the phrase "as of the First
Amendment Effective Date".

                  2.9 Section 6.01(aa). Section 6.01(aa) of the Credit Agreement
is hereby amended to delete the phrase "as of the Closing Date" therein and to
substitute in lieu thereof the phrase "as of the First Amendment Effective
Date".

                  2.10 Section 8.11(b)(ii)(y). Section 8.11(b)(ii)(y) of the
Credit Agreement is hereby amended to delete the reference therein to
"Intercreditor Agreement" and to substitute in lieu thereof "Term Loan
Intercreditor Agreement".

                  2.11 Section 9.01. Section 9.01 of the Credit Agreement is
hereby amended as follows:

                  (a) Clause (viii) thereof is amended to add the phrase "and
      pursuant to the Multicurrency Loan Documents" immediately following the
      reference to "Permitted Receivables Transaction Documents" therein;

                  (b) Clause (x) thereof is amended to delete in their entirety
      subclauses (D) and (E) thereof and substitute in lieu thereof the
      following:

            "(D) from any Borrower to any Subsidiary of the Company (other than
            Borrowers) in a principal amount, together with any Investments made
            (1) after the First Amendment Effective Date in Finsub and Finsub2
            and (2) after the


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<PAGE>

            Closing Date in any such Subsidiaries of the Company (other than
            Finsub and Finsub2) permitted to be created or capitalized after the
            Closing Date under Section 9.07(b), in any Fiscal Year not to exceed
            the Subsidiary Investment Basket for such Fiscal Year, (E) in
            addition to any loans made to such Person under clause (D) above,
            from Pegasus to Pegasus Asia in an amount at any time outstanding
            not to exceed the sum of (1) $2,000,000, plus (2) the amount of
            dividends received by Pegasus from Pegasus Asia after the Closing
            Date and (F) in addition to any loans made to such Person under
            clauses (D) and (E) above, unless the Agent has delivered the notice
            described in Section 9.02(ii), from the Company or Muehlstein
            International to Finsub in respect of subordinated loans advanced as
            part of the purchase price for Receivables sold to Finsub under the
            Permitted Receivables Transaction Documents; provided, that no loans
            permitted by clauses (D) or (E) shall be made if an Event of Default
            or Default has occurred and is continuing;"

                  2.12 Section 9.02(ii). Section 9.02(ii) of the Credit
Agreement is hereby amended to add the following proviso before the semi-colon
at the end thereof:

            "; provided, however, that, if a Liquidity Event shall occur at any
            time when (x) an Event of Default has occurred and is continuing or
            (y) the Company and its Subsidiaries are not in compliance with any
            covenant contained in Article X (without giving effect to any
            amendment, modification or waiver of any such covenant since the
            date hereof), the Agent may, upon one (1) Business Day's prior
            written notice thereof to the Company and the Permitted Receivables
            Financing Program Trustee, terminate the right of the Company,
            Muehlstein International and any of their Affiliates to continue to
            sell or otherwise transfer Receivables pursuant to the Permitted
            Receivables Financing Documents; and provided, further, that if (a)
            any event shall have occurred and be continuing which constitutes a
            Trust Early Amortization Event or (b) purchases of Receivables under
            the Permitted Receivables Financing Program shall have been
            discontinued for a period of at least five (5) consecutive Business
            Days, the right of the Company, Muehlstein International and any of
            their Affiliates to continue to sell or otherwise transfer
            Receivables pursuant to the Permitted Receivables Financing
            Documents shall be automatically terminated."

                  2.13 Section 9.03. Section 9.03 of the Credit Agreement is
hereby amended as follows:

                  (a)   Clause (vii) thereof is amended to delete the


                                      -12-
<PAGE>

            word "and" at the end thereof;

                  (b) Clause (viii) thereof is amended to delete the period at
      the end thereof and to substitute in lieu thereof "; and"; and

                  (c)  The following clause (ix) is added thereto:

                  "(ix) Liens on the Series 1996-2 Certificate held by Finsub2
            and pledged to secure the obligations of Finsub2 under the
            Multicurrency Loan Documents."

                  2.14 Section 9.04. Section 9.04 of the Credit Agreement is
hereby amended as follows:

                  (a) Clause (iv) thereof is amended to delete the phrase "such
      Subsidiaries and Finsub" therein and to substitute in lieu thereof the
      phrase "such Subsidiaries, Finsub and Finsub2";

                  (b) The "and" at the end of clause (v) thereof is deleted;

                  (c) The period at the end of clause (vi) thereof is replaced
      with a semi-colon; and

                  (d) The following clause (vii) is added thereto:

                  "(vii) Investments by Finsub2 in the Series 1996-2 Certificate
      as contemplated by the Permitted Receivables Transaction Documents."

                  2.15 Section 9.05(v). Section 9.05(v) of the Credit Agreement
is hereby amended to delete the provisions thereof in their entirety and to
substitute in lieu thereof the following:

                  "(v) Accommodation Obligations incurred pursuant to the
            Permitted Receivables Transaction Documents and pursuant to the
            Multicurrency Loan Documents; and"

                  2.16 Section 9.06. Section 9.06 of the Credit Agreement is
hereby amended to delete the second proviso thereto and to substitute in lieu
thereof "and provided, further, that cash redemptions permitted under clause
(vii) above shall be limited to the excess, if any, of the Average Liquidity
during the thirty days immediately preceding the date set for such payment over
$15,000,000".

                  2.17 Section 9.07(a). Section 9.07(a) of the Credit Agreement
is hereby amended to insert the following two sentences at the end of such
subsection:


                                      -13-
<PAGE>

            "Finsub shall not engage in any business other than as contemplated
            by the Permitted Receivables Transaction Documents. Finsub2 shall
            not engage in any business other than as contemplated by the
            Multicurrency Loan Documents."

                  2.18 Section 9.07(b). Section 9.07(b) of the Credit Agreement
is hereby amended to delete the phrase "Sections 9.01(x)(D) and 9.01(x)(E) for
such Fiscal Year" therein and to substitute in lieu thereof the following:

            "Sections 9.01(x)(D), 9.01(x)(E) and 9.01(x)(F) for such Fiscal
            Year; provided, further, however, in addition to such amounts,
            unless the Agent has delivered the notice described in Section
            9.02(ii), the Company and Muehlstein International may make capital
            contributions to Finsub to the extent required to be made under the
            Permitted Receivables Transaction Documents (i) as part of the
            purchase price for Receivables sold to Finsub thereunder and (ii) to
            cause the Net Receivables Balance to equal the Required Net
            Receivables Balance; and provided, further, however, that Pegasus
            may capitalize Finsub2 by making a capital contribution to Finsub2
            on the First Amendment Effective Date in an aggregate amount equal
            to 102% of the principal amount of the Series 1996-2 Certificate
            purchased by Finsub2 under the Permitted Receivables Transaction
            Documents (it being understood and agreed that such principal amount
            shall in no event exceed $25,000,000)"

                  2.19 Section 9.16. Section 9.16 of the Credit Agreement is
hereby amended as follows:

                  (a) Clause (ii) thereof is amended to delete the phrase
      "average aggregate Revolving Credit Availability under all Credit
      Facilities (plus the average liquidity available to the Borrowers under
      the Permitted Receivables Financing Program)" therein and to substitute in
      lieu thereof "Average Liquidity"; and

                  (b) Clause (iii)(B) thereof is deleted in its entirety and the
      following is substituted in lieu thereof:

            (B) the Finova Documents, the Common Equity Notes, the Permitted
            Receivables Transaction Documents, the Multicurrency Loan Documents
            or any documents evidencing the Permitted Subordinated Indebtedness
            in any respect that is adverse to the Lenders, provided, that no
            Persons other than the Company and Muehlstein International may be
            added as sellers of Receivables to Finsub under the Permitted
            Receivables Transaction Documents.


                                      -14-
<PAGE>

                  2.20 Section 9.20. Section 9.20 of the Credit Agreement is
hereby amended to add the phrase ", the Multicurrency Loan Documents"
immediately following the reference to "Loan Documents" therein.

                  2.21 Section 11.01. Section 11.01 of the Credit Agreement is
hereby amended as follows:

                  (a) Section 11.01(e) is amended to delete the phrase "'Event
      of Termination' under and as defined in the Permitted Receivables
      Transaction Documents, or which could otherwise cause the early
      termination of the Permitted Receivables Financing Program" and to
      substitute in lieu thereof "Trust Early Amortization Event; or purchases
      of Receivables under the Permitted Receivables Financing Program shall
      have been discontinued for a period of at least five (5) consecutive
      Business Days".

                  (b) Section 11.01(n) of the Credit Agreement is amended to
      delete the provisions thereof in their entirety and to substitute in lieu
      thereof the following:

                        "(n) Intercreditor Agreements. Any party to any
            Intercreditor Agreements (other than the Agent and the Lenders)
            shall fail to perform any material covenant or material obligation
            binding on such party thereunder or any Intercreditor Agreement
            shall cease to be in full force and effect."

                  2.22 Section 13.15. Section 13.15 of the Credit Agreement is
hereby amended to delete each reference therein (including the Section heading
thereof) to "Intercreditor Agreement" and to substitute in lieu thereof
"Intercreditor Agreements".

                  3. Amendments to Schedules and Exhibits to Credit Agreement.
Upon the First Amendment Effective Date, the Schedules and Exhibits to the
Credit Agreement are hereby amended as follows:

                  3.1 Schedule 1.01.1. Schedule 1.01.1 to the Credit Agreement
      is deleted in its entirety and Annex A attached hereto and made a part
      hereof shall be substituted therefor.

                  3.2 Schedule 1.01.2. Schedule 1.01.2 to the Credit Agreement
      is deleted in its entirety and Annex B attached hereto and made a part
      hereof shall be substituted therefor.

                  3.3 Schedule 1.01.7. New Schedule 1.01.7 to the Credit
      Agreement, entitled "Permitted Receivables


                                      -15-
<PAGE>

      Transaction Documents and Definitions," is added in the form of Annex C
      attached hereto and made a part hereof.

                  3.4 Schedule 6.01-C. Schedule 6.01-C to the Credit Agreement
      is deleted in its entirety and Annex D attached hereto and made a part
      hereof shall be substituted therefor.

                  3.5 Schedule 6.01-AA. Schedule 6.01-AA to the Credit Agreement
      is deleted in its entirety and Annex E attached hereto and made a part
      hereof shall be substituted therefor.

                  3.6 Exhibit O-1. Exhibit O-1 to the Credit Agreement is
      deleted in its entirety and Annex F attached hereto and made a part hereof
      shall be substituted therefor.

            4. Lender Consents.

                  4.1 As of the First Amendment Effective Date, the Lenders
      hereby approve (i) the Permitted Receivables Financing Program and the
      execution, delivery and performance by the Company, Muehlstein
      International, Finsub and Finsub2 of the Permitted Receivables Transaction
      Documents, provided that, concurrently therewith, the Company and
      Muehlstein International shall have made a mandatory prepayment to the
      Agent, for the benefit of the U.S. Lenders, of the Net Cash Proceeds
      arising from the initial sale of Receivables pursuant to the Permitted
      Receivables Transaction Documents in an amount not less than $50,000,000,
      (ii) the transactions evidenced by the Multicurrency Loan Documents and
      the execution, delivery and performance by Pegasus and Finsub2 thereof,
      provided that, prior to or concurrently therewith, the Multicurrency
      Borrower shall have paid to the Agent, for the benefit of the
      Multicurrency Lenders, the outstanding principal amount of all
      Multicurrency Loans, together with all other Obligations arising in
      connection with the Multicurrency Facility (whereupon each Multicurrency
      Lender will return to Pegasus its Multicurrency Loan Note marked
      "cancelled"), and (iii) a Borrowing on the First Amendment Effective Date,
      the proceeds of which shall be used by Pegasus to make a capital
      contribution to Finsub2 so that Finsub2 may pay for the Series 1996-2
      Certificate (it being understood and agreed that if such Borrowing is
      repaid by 5:00 p.m. (New York time) on the First Amendment Effective Date,
      then no interest shall be payable with respect thereto).

                  4.2 The Lenders hereby instruct and direct the Agent, upon the
      occurrence of the First Amendment Effective Date, (i) to release its Liens
      on the Receivables sold from time to time pursuant to the Permitted
      Receivables Transaction Documents (including, without limitation, all



                                      -16-
<PAGE>

      Liens on Dollar denominated Receivables of the Company and Muehlstein
      International which are so sold from time to time), (ii) to enter into the
      Permitted Receivables Intercreditor Agreement and to take all actions
      required to be taken by the Agent thereby (including, without limitation,
      the transfer of certain Collection Accounts of the Company and the
      Borrower to the Permitted Receivables Financing Program Trustee) and (iii)
      to enter into the Multicurrency Intercreditor Agreement and to take all
      actions required to be taken by the Agent thereunder.

                  4.3 The Canadian Lender hereby instructs and directs the
      Canadian Agent, upon the occurrence of the First Amendment Effective Date,
      to enter into the Permitted Receivables Intercreditor Agreement and to
      take all actions required to be taken by the Canadian Agent thereunder.

            5. Limited Waiver. As of the First Amendment Effective Date, the
Lenders hereby (a) waive the provisions of Section 8.11(a) of the Credit
Agreement in respect of (and solely in respect of) the Obligations of Holdings
and the Borrowers to deliver within ninety (90) days after the Closing Date all
"Foreign Personal Property Security Documents" identified on the Closing List as
pertaining to Spain and France and (b) extend the time period for the delivery
of such Loan Documents to September 30, 1996 (or such later date as may be
agreed to by the Agent). If such Loan Documents are not delivered on or before
such date, the limited waiver under this Section 5 shall expire.

            6. Representations and Warranties. Each of the Borrowers hereby
represents and warrants to each Lender, the Issuing Bank and the Agent that, as
of the First Amendment Effective Date and after giving effect to this First
Amendment, the Permitted Receivables Financing Program and the effectiveness of
the Multicurrency Loan Documents:

            (a) Each of the representations and warranties contained in this
      Amendment, the Credit Agreement as amended hereby and the other Loan
      Documents are true and correct in all material respects on and as of the
      First Amendment Effective Date, as if then made, other than
      representations and warranties which expressly speak as of a different
      date;

            (b) No Default or Event of Default has occurred or is continuing;
      and

            (c) No change (other than as contemplated by the Registration
      Statement) in the condition (financial or otherwise), business,
      performance, assets, operations or prospects of the Domestic Borrowers,
      taken as a whole, or the Canadian Borrower, individually, has occurred
      since December 31, 1994, which change has had or is reasonably likely to
      have a Material Adverse Effect.


                                      -17-
<PAGE>

            7. First Amendment Effective Date. This First Amendment shall become
effective as of the date, on or before September 30, 1996 (the "First Amendment
Effective Date") when each of the following conditions shall have been
satisfied:

            (a) the Agent shall have received each of the following documents,
      in each case in form and substance satisfactory to the Agent:

                  (i) counterparts hereof executed by each Borrower, Holdings,
            the Agent, the Canadian Agent and each Lender;

                  (ii) an amendatory agreement in substantially the form of
            Annex G attached hereto and made a part hereof;

                  (iii) UCC amendment statements with respect to each UCC-1
            financing statement filed against the Company or Muehlstein
            International, giving effect to the amendments, pursuant to the
            amendatory agreement referred to in the immediately preceding clause
            (ii), to the Borrower Security Agreements executed by the Company
            and Muehlstein International;

                  (iv) (A) stock certificate(s) representing 100% of the Capital
            Stock of Finsub, together with stock powers (executed in blank)
            therefor, (B) all subordinated promissory notes issued to the
            Company and Muehlstein International pursuant to the Permitted
            Receivables Transaction Documents, endorsed in blank, (C)
            replacements for the applicable exhibits to the Borrower Pledge
            Agreements executed by the Company and Muehlstein International
            reflecting the pledge of the property described in subclauses (A)
            and (B) above, and (D) an acknowledgement of pledge executed by
            Finsub;

                  (v) (A) a Pledge Agreement executed by Pegasus, in
            substantially the form of Exhibit C to the Credit Agreement, (B)
            stock certificate(s) representing 100% of the Capital Stock of
            Finsub2, together with stock powers (executed in blank) therefor,
            and (C) an acknowledgement of pledge executed by Finsub2;

                  (vi) fully executed copies of the Permitted Receivables
            Intercreditor Agreement and the Multicurrency Intercreditor
            Agreement;

                  (vii) a copy of each of the Permitted Receivables Transaction
            Documents, certified as of the First Amendment Effective Date by the
            Secretary or an Assistant Secretary of the Company (A) to be a true,
            correct and complete copy of each such document and



                                      -18-
<PAGE>

            (B) not to have been amended or rescinded;

                  (viii) a copy of each of the Multicurrency Loan Documents,
            certified as of the First Amendment Effective Date by the Secretary
            or an Assistant Secretary of Pegasus (A) to be a true, correct and
            complete copy of each such document and (B) not to have been amended
            or rescinded;

                  (ix) a certificate of the chief executive officer, chief
            financial officer or treasurer of the Company executed and delivered
            on behalf of the Borrowers certifying that all conditions precedent
            required to be satisfied by Holdings, the Company, the other
            Borrowers or any Subsidiary Guarantor for the effectiveness of this
            First Amendment have been satisfied;

                  (x) a certificate of the Secretary or Assistant Secretary of
            Holdings, each Borrower, Finsub and Finsub2 dated the First
            Amendment Effective Date certifying (A) the names and true
            signatures of the incumbent officers of such Persons authorized to
            sign this Amendment and the other Transaction Documents executed in
            connection with this Amendment to which it is a party, (B) the
            By-laws of such Person as in effect on the date of such
            certification, (C) the resolutions of such Person's Board of
            Directors approving and authorizing the execution, delivery and
            performance of this Amendment and the other Transaction Documents
            executed in connection with this Amendment to which it is a party
            and (D) the Articles or Certificate of Incorporation, certified by
            the applicable Government Authority, if not previously delivered to
            the Agent, or that there have been no changes in the Certificate or
            Articles of Incorporation of such Person since the date of the most
            recent certification thereof by the Secretary of State of the
            applicable State delivered to the Agent;

                  (xi) Good Standing Certificates relating to the Borrowers, the
            Subsidiary Guarantors, Finsub and Finsub2 in the jurisdictions set
            forth on Annex H attached hereto and made a part hereof; and

                  (xii) A favorable opinion of McDermott, Will & Emery, counsel
            to the Borrowers, Subsidiary Guarantors, Finsub and Finsub2, in form
            and substance satisfactory to the Requisite Lenders, and a letter
            entitling the Agent, the Canadian Agent, the Issuing Banks and the
            Lenders to rely on any opinion or opinions delivered by McDermott,
            Will & Emery in connection with the Permitted Receivables
            Transaction Documents and the



                                      -19-
<PAGE>

            Multicurrency Loan Documents; and

                  (xiii) such additional documentation as the Agent may
            reasonably request.

            (b) The Borrowers shall have paid to the Agent, together with any
      payments required under Section 4 above, an amount sufficient to reduce
      the Revolving Credit Obligations for each Credit Facility to an amount
      which is less than or equal to the Maximum Revolving Credit Amount for
      such Credit Facility.

            (c) The Agent and the Requisite Lenders shall be satisfied that: (i)
      the Permitted Receivables Transaction Documents and the Multicurrency Loan
      Documents shall have been duly approved and executed and delivered by the
      parties thereto in form and substance satisfactory to the Agent and the
      Requisite Lenders, and (ii) all conditions precedent to closing under the
      Permitted Receivables Transaction Documents and the Multicurrency
      Documents have been satisfied (and no modification or waiver of any such
      condition shall have been made without the consent of the Agent) and such
      documents are, or simultaneously with the execution hereof, will be in
      full force and effect.

            (d) No law, regulation, order, judgment or decree of any
      Governmental Authority shall, and the Agent shall not have received any
      notice that litigation is pending or threatened which is likely to,
      enjoin, prohibit or restrain the consummation of the transactions
      contemplated by this First Amendment, except for such laws, regulations,
      orders or decrees, or pending or threatened litigation that in the
      aggregate could not reasonably be expected to result in a Material Adverse
      Effect.

            (e) Each of the representations and warranties contained in this
      Amendment, the Credit Agreement as amended hereby and the other Loan
      Documents shall be true and correct in all material respects on and as of
      the First Amendment Effective Date, as if then made, other than
      representations and warranties which expressly speak as of a different
      date;

            (f) All corporate and other proceedings, and all documents,
      instruments and other legal matters in connection with the transactions
      contemplated by this Amendment shall be satisfactory in all respects in
      form and substance to the Agent and the Requisite Lenders.

            (g) No Event of Default or Default shall have occurred and be
      continuing on the First Amendment Effective Date.

            8.    Reference to and Effect on the Loan Documents.


                                      -20-
<PAGE>

            (a) Upon the effectiveness of this Amendment, on and after the date
hereof, each reference in the Credit Agreement as amended hereby to "this
Agreement", "hereunder", "hereof" or words of like import, and each reference in
the other Loan Documents to the Credit Agreement, shall mean and be a reference
to the Credit Agreement as amended hereby.

            (b) Except as specifically amended above, all of the terms of the
Credit Agreement and all other Loan Documents shall remain unchanged and in full
force and effect.

            (c) The execution, delivery and effectiveness of this Amendment
shall not, except as expressly provided herein, operate as a waiver of any
right, power or remedy of any Senior Lender, the Agent or the Collateral Agent
under the Credit Agreement or any of the Loan Documents, nor constitute a waiver
of any provision of the Credit Agreement or any of the Loan Documents.

            9. Costs and Expenses. The Borrowers (other than the Canadian
Borrower) jointly and severally agree to pay upon demand in accordance with the
terms of Section 13.02 of the Credit Agreement all reasonable costs and expenses
of the Agent in connection with the preparation, reproduction, negotiation,
execution and delivery of this Amendment and all other Loan Documents entered
into in connection herewith, including, without limitation, the reasonable fees,
expenses and disbursements of Sidley & Austin, counsel for the Agent with
respect to any of the foregoing.

            10. Miscellaneous. This First Amendment is a Loan Document. The
headings herein are for convenience of reference only and shall not alter or
otherwise affect the meaning hereof.

            11. Counterparts. This First Amendment may be executed in any number
of counterparts and by the different parties hereto in separate counterparts,
each of which when so executed and delivered shall be an original, but all of
which shall together constitute one and the same instrument.

            12. GOVERNING LAW. THIS FIRST AMENDMENT SHALL BE INTERPRETED, AND
THE RIGHTS AND LIABILITIES OF THE PARTIES HERETO AND TO THE CREDIT AGREEMENT AS
AMENDED HEREBY DETERMINED, IN ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK.



                                      -21-
<PAGE>

            IN WITNESS WHEREOF, the Agent, the Canadian Agent, the Lenders, the
Borrowers and Holdings have caused this First Amendment to be executed by their
respective officers thereunto duly authorized as of the date first above
written.


                              H. MUEHLSTEIN & CO., INC.


                              By:_______________________________________________
                                 Name:
                                 Title:


                              PEGASUS POLYMERS INTERNATIONAL INC.


                              By:_______________________________________________
                                 Name:
                                 Title:


                              MUEHLSTEIN INTERNATIONAL, LTD.


                              By:_______________________________________________
                                 Name:
                                 Title:


                              H. MUEHLSTEIN & CO. (CANADA) LIMITED


                              By:_______________________________________________
                                 Name:
                                 Title:


                              MUEHLSTEIN HOLDING CORPORATION


                              By:_______________________________________________
                                 Name:
                                 Title:


                              CITICORP USA, INC., as Agent and U.S.
                              Lender


                              By:_______________________________________________
                                 Name:
                                 Title:


                                      -22-
<PAGE>

                              CITIBANK, N.A., as Multicurrency Lender


                              By:_______________________________________________
                                 Name:
                                 Title:


                              CITIBANK CANADA, as Canadian Agent and
                              Canadian Lender


                              By:_______________________________________________
                                 Name:
                                 Title:


                              NATIONSBANK, N.A., as U.S. Lender and
                              Multicurrency Lender


                              By:_______________________________________________
                                 Name:
                                 Title:


                              HELLER FINANCIAL, INC., as U.S. Lender


                              By:_______________________________________________
                                 Name:
                                 Title:



                                      -23-
<PAGE>

                                     ANNEX A
                                       TO
                       FIRST AMENDMENT, CONSENT AND WAIVER

                    New Schedule 1.01.1 to Credit Agreement

                               [To be attached]
<PAGE>

                                     ANNEX B
                                       TO
                       FIRST AMENDMENT, CONSENT AND WAIVER

                    New Schedule 1.01.2 to Credit Agreement

                               [To be attached]
<PAGE>

                                     ANNEX C
                                       TO
                       FIRST AMENDMENT, CONSENT AND WAIVER

                     New Schedule 1.01.7 to Credit Agreement

Permitted Receivables Transaction Documents

[To be inserted]

Applicable Definitions

            "Early Amortization Event" means [to be inserted from the final
Series 1996-1 Supplement].

            "Net Receivables Balance" means [to be inserted from final Pooling
and Servicing Agreement].

            "Required Net Receivables Balance" means [to be inserted from final
Pooling and Servicing Agreement].

            "Trust Early Amortization Event" means [to be inserted from final
Pooling and Servicing Agreement].

[Other definitions used in the above definitions to be inserted from final
Permitted Receivables Transaction Documents]
<PAGE>

                                     ANNEX D
                                       TO
                       FIRST AMENDMENT, CONSENT AND WAIVER

                     New Schedule 6.01-C to Credit Agreement

                                [To be attached]
<PAGE>

                                     ANNEX E
                                       TO
                       FIRST AMENDMENT, CONSENT AND WAIVER

                    New Schedule 6.01-AA to Credit Agreement

                                [To be attached]
<PAGE>

                                     ANNEX F
                                       TO
                       FIRST AMENDMENT, CONSENT AND WAIVER

                       New Exhibit O-1 to Credit Agreement

                                [To be attached]
<PAGE>

                                     ANNEX G
                                       TO
                       FIRST AMENDMENT, CONSENT AND WAIVER

                          Form of Amendatory Agreement

                                [To be attached]
<PAGE>

                                     ANNEX H
                                       TO
                       FIRST AMENDMENT, CONSENT AND WAIVER

                           Good Standing Jurisdictions

                                [To be attached]