SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K

       [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                              EXCHANGE ACT OF 1934

                    For the Fiscal Year Ended March 28, 1999

                                       or,

  [  ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                              EXCHANGE ACT OF 1934

                           Commission File No. 0-12644

                                   Benihana Inc.
             -----------------------------------------------------
            (Exact name of registrant as specified in its charter)


                 Delaware                               65-0538630
       -------------------------------               ------------------
       (State or other jurisdiction of               (I.R.S. Employer
       incorporation or organization)                Identification No.)


     8685 Northwest 53rd Terrace, Miami, Florida           33166
     -------------------------------------------           -----
     (Address of principal executive offices)             (Zip Code)

   (Registrant's telephone number, including area code): (305) 593-0770

      Securities  registered  pursuant to Section 12(b) of the Act:

                                    None

      Securities  registered  pursuant to Section 12 (g) of the Act:

                  Common Stock, par value $.10 per share
              Class A Common Stock, par value $.10 per share
                      Preferred Share Purchase Right

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 and (2) has been subject to such filing requirements for
the past 90 days.

                               Yes  X      No

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

As of June 4, 1999,  3,571,616  shares of Common Stock and  2,566,676  shares of
Class A Common Stock were  outstanding,  and the  aggregate  market value of the
common  equity  of  Benihana  Inc.  held  by  non-affiliates  was  approximately
$44,754,076.

                       DOCUMENTS INCORPORATED BY REFERENCE

Portions of the  Registrant's  Annual Report to Stockholders  for the year ended
March 28, 1999 are incorporated by reference in Parts I and II.

Portions of the  Registrant's  Proxy Statement for the Annual Meeting to be held
August 5, 1999 are incorporated by reference in Part III.


<PAGE>




Item 1.  General

Benihana Inc. ("the Company") the leading operator of Japanese  teppanyaki-style
restaurants in the United States, currently owns and operates 51 restaurants and
franchises twelve others. The Company also opened its first new sushi restaurant
concept, "Sushi Doraku by Benihana"; one unit opened in fiscal 1999. The Company
has achieved 27  consecutive  quarters of  comparable  quarter  sales growth and
customer  count  increases.   Management   attributes  this  success  to  (i)  a
well-established   brand   identity   supported  by  consistent   marketing  and
promotional  activities  since the opening of the first  Benihana  restaurant in
1964, (ii) growing consumer demand for a dining experience that features a theme
or entertainment  component,  (iii) the Company's  continued emphasis on quality
and customer satisfaction, and (iv) Benihana's experienced management team.

The Company owns the exclusive  rights to develop,  operate or license  Benihana
and Benihana Grill  restaurants in the United States  (subject to certain rights
granted to Benihana of Tokyo, Inc. ("BOT") with respect to the State of Hawaii),
Central and South America and the Caribbean Islands.

A description of the Company-owned  and licensed  restaurants is set forth below
under "Properties".

Sales by the Company's owned restaurants were approximately $118,351,000 for the
fiscal year ended March 28, 1999, as compared to  approximately  $99,062,000 for
the prior fiscal year.

Benihana Concept

The Company offers casual upscale  dining in a distinctive  Japanese  atmosphere
enhanced by the unique  entertainment  provided by the Company's  highly-skilled
Benihana  chefs who prepare  fresh  steak,  chicken  and seafood in  traditional
Japanese  style  at  the  customer's  table.  Most  of  the  Company's  Benihana
restaurants are open for both lunch and dinner.  The restaurants  have a limited
menu offering a full course meal consisting of an appetizer,  soup,  salad, tea,
rice, a vegetable and an entree of steak, seafood, chicken or any combination of
them. Specific menu items may be different in the various restaurants  depending
upon the local  geographic  market.  The servings are all portion  controlled to
provide consistency in quantities served to each customer.  Alcoholic beverages,
including  specialty mixed drinks,  wines, beers and soft drinks, are available.
The average  check size per person was $22.39 in the fiscal 1999.  During fiscal
1999,  beverage  sales  in both the  lounges  and  dining  rooms  accounted  for
approximately  17% of total  restaurant  sales.  The Company offers sushi at the
teppanyaki  grill in all its  restaurants and at separate sushi bars within most
restaurants.

An entire teppanyaki table generally seats eight customers. The chef is assisted
in the service of the meal by the waitress or waiter who takes beverage and food
orders.  An entire  dinner  time meal  takes  approximately  one hour and thirty
minutes.

Of the 51 owned Benihana restaurants,  33 are located in free-standing,  special
use restaurant  buildings,  seven in shopping centers, and 11 in office or hotel
building  complexes.  The free-standing  restaurants were built to the Company's
specifications  as to size,  style and interior and  exterior  decor.  The other
locations  were  adapted to the  Benihana  interior  decor.  The  free-standing,
traditional  Benihana restaurant units, which are generally one story buildings,
average  approximately  8,000  square  feet  and  are  constructed  on a lot  of
approximately  1.25 to 1.50 acres.  The  shopping  center,  office  building and
hotel-based  Benihana  restaurants  are of similar size, but differ  somewhat in
appearance  from  location  to  location  in order to  conform  to the  existing
buildings.  A typical Benihana restaurant has 18 teppanyaki tables. The Benihana
restaurants  seat  from 86 to 178  customers  in the  dining  rooms and 8 to 120
customers in the bar lounge areas. See "Properties."

Restaurant Operations

The  Company's   restaurants  are  centrally   managed  by  the  Executive  Vice
President-Restaurant  Operations and are divided among seven geographic regions,
each managed by a regional  manager.  Food  preparation  in the  restaurants  is
supervised by eight regional chefs.

Each  Benihana  restaurant  has a  manager  and one or more  assistant  managers
responsible for the operation of the restaurant,  including  personnel  matters,
local  inventory   purchasing,   maintenance  of  quality   control   standards,
cleanliness and service.

The Company  uses various  incentive  compensation  plans  pursuant to which key
restaurant  personnel  share in the  results of  operations  at both a local and
company-wide level.

                                     2

<PAGE>


Specific strict  guidelines as documented in restaurant  operations  manuals are
followed  to assure  consistently  high  quality in  customer  service  and food
quality from location to location. Operating specifications are used for quality
of  ingredients,  preparation  of food,  maintenance  of premises  and  employee
conduct and are incorporated in manuals used by the managers, assistant managers
and head chefs. Food products and portion sizes are regularly and systematically
tested for quality and compliance with the Company's standards.  Certain seafood
items are  purchased in bulk for most of the  restaurants  under which a certain
quantity is purchased at a specific  price.  Most of the other food products are
purchased  in  local  markets.  Substantially  all of the  restaurant  operating
supplies are purchased  centrally and  distributed to the  restaurants  from the
Company's warehouse or one of the two bonded warehouses.

The chefs are trained in the teppanyaki-style of cooking and customer service in
training  programs lasting from eight to twelve weeks. A portion of the training
is spent working in a Benihana  restaurant  under the direct  supervision  of an
experienced head chef. The program includes  lectures on the Company's method of
restaurant   operations  and  training  in  both  table-side  and  kitchen  food
preparation  as applied in  Benihana  restaurants.  Manager  training is similar
except that the manager  trainee is given in-depth  exposure to each position in
the  restaurant.  Other  categories  of employees are trained by the manager and
assistant  manager  at  the  restaurant  itself.  Ongoing  continuing  education
programs and seminars are provided to  restaurant  managers and chefs to improve
restaurant quality and implement changes in operating policy or menu items.

Marketing

The Company utilizes television, radio, billboard and print media to promote its
restaurants,  strengthen its brand identity and maintain high name  recognition.
The  advertising  programs  are tailored to each local market and to print media
focused  on the  business  traveler.  The  advertising  program is  designed  to
emphasize the inherently fresh aspects of a Benihana meal and the  entertainment
value of the food  preparation  at the table.  In fiscal year 1999,  the Company
expended $5.7 million on advertising and other marketing,  approximately 4.8% of
net sales.  The  entertainment  value of the Benihana method of food preparation
and  service  is  emphasized  to  distinguish  Benihana  from  other  restaurant
concepts.

Franchising

The Company has, from time to time, franchised  experienced restaurant operators
(such as Hilton  Hotels)  in markets in which it  considers  expansion  to be of
benefit to the  Benihana  system.  The  Company  has begun to more  aggressively
pursue franchising opportunities, particularly in foreign countries (Central and
South  America and the Caribbean  Islands)  where the Company owns the rights to
the Benihana trademarks and system.

Franchisees bear all direct costs involved in the development,  construction and
operation of their  restaurants.  The Company provides  franchisees  support for
site selection,  prototypical  architectural plans, interior and exterior design
and layout, training, marketing and sales techniques and opening assistance. All
franchisees  are  required  to operate  their  restaurants  in  accordance  with
Benihana standards and specifications including menu offerings, food quality and
preparation.

The current standard franchise  agreement provides for payment to the Company of
a  non-refundable  franchise  fee of  $30,000  to  $50,000  per  restaurant  and
royalties of 3% to 6% of sales.  In fiscal year 1999 revenues  from  franchising
were $798,000.

The Company  presently  franchises  Benihana  restaurants in Anchorage,  Alaska;
Austin,  Texas; Las Vegas,  Nevada;  Reno,  Nevada;  Beverly Hills,  California;
Seattle,  Washington;  Key  West,  Florida;  Harrisburg,  Pennsylvania;  Bogota,
Colombia;  Little Rock, Arkansas; Lima, Peru and Aruba. The Company has signed a
development  agreement for Venezuela,  but no restaurants  have opened under the
development agreement. To comply with the terms of these franchises entered into
by the Company in the United  States,  the Company is  prohibited  from  opening
additional  restaurants  within  certain  areas  which  the  Company's  existing
franchises have the exclusive right to open additional restaurants and operating
their existing  Benihana  restaurants.  In general,  such  franchise  agreements
currently  provide for an initial  payment to Benihana  with respect to each new
restaurant opened by a franchisee and continuing royalty payments to the Company
based upon a percentage of a franchisee's  gross sales from each such restaurant
throughout the term of the franchise.

Trade Names and Service Marks

                                      3

<PAGE>


Benihana is Japanese for "red flower".  In the United States, the "Benihana" and
"Benihana of Tokyo" names and "flower" logo, which management  believes to be of
material importance to the Company's business,  are owned by the Company and are
registered in the United States Patent and Trademark  Office and certain foreign
countries.  The Company also owns registered trademarks of Samurai, Kyoto brands
and the "Sushi Doraku by Benihana" concept.

Benihana of Tokyo,  Inc.  ("BOT") a privately held company and originator of the
Benihana concept continues to own the rights to the Benihana name and trademarks
outside  of the United  States,  Central  and South  America  and the  Caribbean
Islands.  BOT is a  principal  shareholder  of the  Company.  The Company has no
financial interest in any restaurant operated by BOT.

Employees

At March 28, 1999,  the Company  employed 2,511  persons,  of which,  2,459 were
restaurant  employees and 52 were corporate  personnel.  Most employees,  except
restaurant management and corporate management personnel,  are paid on an hourly
basis.  The Company also employs some restaurant  personnel on a part-time basis
to  provide  the  services  necessary  during  the peak  periods  of  restaurant
operations.  The Company believes its  relationship  with its employees is good.
None of the Company's employees are covered by collective bargaining agreements.

Competition

The casual  dining  segment of the  restaurant  industry  is  expected to remain
intensely competitive with respect to price, service, location, and the type and
quality  of  food.  Each  of the  Company's  restaurants  competes  directly  or
indirectly  with  locally-owned  restaurants  as well as regional  and  national
chains, and several of the Company's significant  competitors are larger or more
diversified and have  substantially  greater  resources than the Company.  It is
also  anticipated  that  growth  in  the  industry  will  result  in  continuing
competition for available  restaurant sites as well as continued  competition in
attracting and retaining qualified  management-level  operating  personnel.  The
Company  believes that its competitive  position is enhanced by offering quality
food selections at an appropriate price with the unique  entertainment  provided
by its chefs in an attractive, relaxed atmosphere.

Government Regulation

Each of the Company's  restaurants is subject to licensing and regulation by the
health, sanitation, safety standards, fire department and the alcoholic beverage
control   authorities  in  the  state  or  municipality  where  it  is  located.
Difficulties  or  failure in  obtaining  the  required  licensing  or  requisite
approvals  could  result  in  delays  or  cancellations  in the  opening  of new
restaurants; termination of the liquor license for any Benihana restaurant would
adversely affect the revenues for the restaurant.  While the Company to date has
not experienced any material difficulties in obtaining and maintaining necessary
governmental approvals, the failure to obtain or retain, or a delay in obtaining
food and  liquor  licenses  or any other  governmental  approvals  could  have a
material adverse effect on the Company's  operating  results.  Federal and state
environmental  regulations  have  not had a  material  effect  on the  Company's
operations,  but more stringent and varied  requirements  of local  governmental
bodies with respect to zoning,  land use and  environmental  factors could delay
construction of new restaurants.

The Company is also subject to federal and state regulations regarding franchise
offering and sales. Such laws impose registration and disclosure requirements on
franchisors in the offer and sale of franchises, or impose substantive standards
on the relationship between franchisee and franchisor.

The Americans with Disabilities Act (the "ADA"), prohibits discrimination on the
basis of disability in public  accommodations  and  employment.  The ADA,  which
mandates  accessibility  standards for individuals  with physical  disabilities,
increases the cost of construction  of new  restaurants and of remodeling  older
restaurants.

The Company is also subject to the Fair Labor  Standards  Act which governs such
matters as minimum wages,  overtime and other working conditions.  A significant
portion of the  Company's  food service  personnel  are paid at rates related to
federal or state  minimum  wage rates,  and  accordingly,  increases in any such
minimum wage will increase the Company's labor costs.

Management Information Systems

The  Company  provides  restaurant  managers  with  centralized   financial  and
management  control systems through use of data processing  information  systems
and prescribed reporting procedures.

                                     4

<PAGE>


Each  restaurant  forwards sales  reports,  vendor  invoices,  payroll and other
operational  data to the home office on a weekly and four-week period basis. The
Company utilizes this information to centrally monitor sales, product, labor and
other  costs and to prepare  periodic  financial  and  management  reports.  The
Company believes that its centralized  accounting,  payroll and human resources,
cash  management  and  information  systems  improve  its ability to control and
manage its operations efficiently.

Properties

Of the 51 restaurants  operated by the Company, 45 are leased pursuant to leases
which require either a specific  monthly rental or a minimum rent and additional
rent based upon a  percentage  of gross sales.  In addition  there are two Sushi
Doraku by Benihana restaurants under construction in Chicago, Illinois and Miami
Beach,  Florida and two Benihana  restaurants under construction in Santa Monica
and Monterey, California.  Generally, these leases are "triple net" leases which
pass  increases in property  operating  expenses,  such as real estate taxes and
utilities,  through to the Company as tenant.  Expiration dates of these leases,
including renewal options, range from March 2000 to March 2027.

                                    5

<PAGE>

The  following  table sets forth the  location of the  restaurants  owned by the
Company:
<TABLE>
<CAPTION>

                                                              Approximate Seating
 Benihana or Sushi                   Approx.         ------------------------------------
Doraku by Benihana                  Sq. Ft. of       Dining                         Sushi          Date
     Location                        Building         Room         Lounge            Bar          Opened
------------------                  ----------       ------        ------           -----         ------
<S>                                 <C>              <C>           <C>              <C>           <C>
CALIFORNIA:

   2100 E. Ball Road
   Anaheim  (1)                     8,710            160             67             36         March, 1980

   1496 Old Bayshore Hwy.
   Burlingame  (2)                  8,740            160             99             27         February, 1978

   17877 Gale Avenue
   City of Industry  (1)            8,000            144             50             30         November, 1988

   1989 Diamond Blvd.
   Concord  (1)                     8,250            144             84             18         February, 1980

   2074 Vallco Fashion Pk.
   Cupertino  (1)                   7,937            144             45             8          July, 1980

   16226 Ventura Blvd.
   Encino  (2)                      7,790            152             64             -0-        October, 1970

   14160 Panay Way
   Marina Del Rey  (1)              4,840            96              66             6          March, 1972

   136 Oliver Street
   Monterey                         4,856            -0-             -0-            -0-        under construction

   4250 Birch Street
   Newport Beach                    8,275            144             72             26         March, 1978

   3760 E. Inland Empire Blvd.
   Ontario (1)                      7,433            144             8              20         December, 1998

   5489F Sunrise Blvd.
   Citrus Heights
   Sacramento  (1)                  3,798            88              8              5          October, 1995

   477 Camino Del Rio So.
   San Diego  (1)                   7,981            144             68             23         May, 1977

   1737 Post Street
   San Francisco  (1)               7,990            140             45             -0-        December, 1980

   1447-1457 4th Street
   Santa Monica                     7,500            -0-             -0-            -0-        under construction

   21327 Hawthorne Blvd.
   Torrance  (1)                    7,430            128             63             28         May, 1980

</TABLE>
(1)  Lease  provides  for  minimum  rent,  plus  additional  rent  based  upon a
     percentage of gross sales.
(2)  Lease provides for fixed rent.

                                      6


<PAGE>
<TABLE>
<CAPTION>

                                                            Approximate Seating
 Benihana or Sushi                   Approx.         ----------------------------------
Doraku by Benihana                  Sq. Ft. of       Dining                       Sushi            Date
    Location                         Building         Room         Lounge          Bar            Opened
------------------                  ----------       ------        ------         -----           ------
<S>                                 <C>              <C>           <C>            <C>             <C>
COLORADO:

   3295 S. Tamarac Dr.
   Denver  (1)                      7,572            128             82             10         February, 1977

DISTRICT OF COLUMBIA:

   3222 M Street, NW
   Washington  (2)                  7,761            136             4              24         May, 1982

FLORIDA:

   300 S.W. 1st Avenue
   Ft. Lauderdale                   3,700            N/A             N/A            103        June, 1998

   276 E. Commercial Blvd.
   Ft. Lauderdale                   8,965            160             70             -0-        June, 1970

   8727 South Dixie Hwy.
   Miami  (2)                       8,700            122             66             15         March, 1989
   (Kendall)

   8717 S.W. 136th St.
   Miami  (1)                       8,162            176             42             -0-        October, 1981

   1665 N.E. 79th St.
   Miami Beach                      8,938            178             86             42         September, 1973

   1751 Hotel Plaza Blvd.
   Lake Buena Vista (2)             8,145            128             85             7          October, 1988
   (Orlando)

   1100 Lincoln Road
   Miami Beach                      3,900            -0-             -0-            -0-        under construction

   3602 S.E. Ocean Blvd.
   Stuart                           8,485            160             69             57         February, 1977

GEORGIA:

   2143 Peachtree Rd., NE
   Atlanta [I]  (2)                 8,244            136             65             16         May, 1974

   229 Peachtree St. NE
   Atlanta [II]  (1)                6,372            115             34             11         April, 1981

</TABLE>

(1)  Lease  provides  for  minimum  rent,  plus  additional  rent  based  upon a
     percentage of gross sales.
(2)  Lease provides for fixed rent.

                                       7
<PAGE>
<TABLE>
<CAPTION>
                                                              Approximate Seating
 Benihana or Sushi                  Approx.         ----------------------------------
Doraku by Benihana                 Sq. Ft. of       Dining                       Sushi           Date
    Location                        Building         Room       Lounge            Bar           Opened
------------------                 ----------       ------      ------           -----          ------
<S>                                <C>              <C>         <C>              <C>            <C>
ILLINOIS:

   166 East Superior St.
   Chicago  (1)                     7,288            144          9               45           April, 1968

   1139 N. State St.
   Chicago                          4,500            -0-          -0-             -0-          under construction

   747 E. Butterfield Rd.
   Lombard                          9,200            168          51              -0-          April, 1985

   1200 E. Higgins Road
   Schaumburg                       8,388            160          48              -0-          July, 1992

INDIANA:

   8830 Keystone Crossing Rd.
   Indianapolis  (1)                8,460            144          93              -0-          February, 1979

KENTUCKY:

   1510 Lake Shore Court
   Louisville  (1)                  7,572            128          88              -0-          July, 1978

MARYLAND:

   7315 Wisconsin Ave.
   Bethesda  (1)                    6,047            128          47              11           October, 1974

MICHIGAN:

   18601 Hubbard Dr.
   Dearborn  (1)                    7,500            136          40              46           March, 1977

   21150 Haggerty Rd.
   Northville  (2)                  8,000            153          20              11           May, 1989
   (Farmington Hills)

   1985 W. Big Beaver Rd.
   Troy  (1)                        8,600            128          46              57           February, 1996

</TABLE>
(1)  Lease  provides  for  minimum  rent,  plus  additional  rent  based  upon a
     percentage of gross sales. (2) Lease provides for fixed rent.

                                  8

<PAGE>
<TABLE>
<CAPTION>
                                                            Approximate Seating
 Benihana or Sushi                   Approx.         ----------------------------------
Doraku by Benihana                  Sq. Ft. of       Dining                       Sushi              Date
     Location                        Building         Room      Lounge             Bar              Opened
------------------                  ----------       ------     ------            -----             ------
<S>                                 <C>              <C>        <C>               <C>               <C>
MINNESOTA:

   850 Louisiana Ave. So.
   Golden Valley                    10,400           192          45              -0-            September, 1980

NEW JERSEY:

   840 Morris Turnpike
   Short Hills  (2)                 11,500           144          56              56             October 1976

   5255 Marlton Pike
   Pennsauken  (1)                  7,000            136          93              10             February, 1978
   (Cherry Hill)

NEW YORK:

   120 East 56th St.
   New York  (2)                    3,859            86           24              -0-            May, 1966

   47 West 56th St.
   New York  (1)                    7,340            112          59              -0-            June, 1973

   2105 Northern Blvd.
   Munsey Park  (1)                 8,252            144          88              75             December, 1978
   (Manhasset)

OHIO:

   50 Tri-County Parkway
   Cincinnati  (1)                  7,669            144          91              -0-            June, 1978

   126 East 6th St.
   Cincinnati  (1)                  5,800            112          30              -0-            August, 1979

   23611 Chagrin Blvd.
   Beachwood  (1)                   10,393           188          85              -0-            May, 1973
   (Cleveland)

OREGON:

   9205 S.W. Cascade Ave.
   Beaverton  (1)                   6,077            112          54              34             August, 1986


</TABLE>
(1)  Lease  provides  for  minimum  rent,  plus  additional  rent  based  upon a
     percentage of gross sales. (2) Lease provides for fixed rent.

                                     9


<PAGE>
<TABLE>
<CAPTION>
                                                           Approximate Seating
 Benihana or Sushi                  Approx.         ----------------------------------
Doraku by Benihana                Sq. Ft. of        Dining                       Sushi              Date
     Location                      Building          Room        Lounge           Bar              Opened
------------------                ----------        ------       ------          -----             ------
<S>                               <C>               <C>          <C>             <C>               <C>
PENNSYLVANIA:

   2100 Greentree Rd.
   Pittsburgh  (1)                  8,000            150          84              -0-            May, 1971

TENNESSEE:

   912 Ridgelake Blvd.
   Memphis   (1)                    8,680            144          78              11             October, 1979

TEXAS:

   7775 Banner Dr.
   Dallas   (2)                     8,007            160          115             -0-            January, 1976

   3848 Oak Lawn Ave.
   Dallas  (1)
   (Turtle Creek)                   3,998            96           0               10             June, 1997

   1318 Louisiana St.
   Houston [I]  (2)                 6,938            128          60              12             May, 1975

   9707 Westheimer Rd.
   Houston [II]   (1)               7,669            144          120             10             November, 1977

   2579 Town Center Blvd.
   Sugar Land  (1)                  3,800            96           0               17             July, 1997

UTAH:

   165 S.W. Temple, Bldg. 1
   Salt Lake City  (1)              7,530            120          72              10             April, 1977

</TABLE>

(1)  Lease  provides  for  minimum  rent,  plus  additional  rent  based  upon a
     percentage of gross sales. (2) Lease provides for fixed rent.


                                    10



<PAGE>



The Company  leases  approximately  10,100  square feet of space for its general
administrative  offices in Miami,  Florida at an annual  rental of $172,000  and
8,000  square  feet for a  warehouse  in Miami,  Florida at an annual  rental of
$25,500. The leases expire May 31, 2009 and October 31, 1999, respectively.

Item 3.  Legal Proceedings

There are no  material  legal  proceedings  to which the  Company  or any of its
subsidiaries is a party other than ordinary litigation incidental to the conduct
of the Company's business.

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

There were no matters  submitted to a vote of security holders during the fourth
quarter.

                                     11

<PAGE>


                                     PART II


Item 5.  Market for the Company's Common Stock and Related Stockholder Matters

The  information  required by this Item is  incorporated  herein by reference to
page 27 of the Company's 1999 Annual Report to Shareholders.

Item 6.  Selected Consolidated Financial Data

The  information  required by this Item is  incorporated  herein by reference to
page 6 of the Company's 1999 Annual Report to Shareholders.

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

The  information  required by this Item is  incorporated  herein by reference to
pages 9 through 11 of the Company's 1999 Annual Report to Shareholders.

Item 7.A.  Quantitative and Qualitative Disclosures About Market Risks

The  information  required by this item is  incorporated  herein by reference to
page 11 of the Company's 1999 Annual Report to Shareholders.

Item 8.  Financial Statements and Supplementary Data

The information required by this Item is incorporated herein by reference to
pages 12  through 26 of the Company's 1999 Annual Report to Shareholders.

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

None.


                                    PART III


Item 10.  Directors and Executive Officers of the Company

Directors.  The information  appearing under the caption "Election of Directors"
on pages 2 through 4 of the Company's  Proxy Statement for its Annual Meeting of
Stockholders  to  be  held  on  August  5,  1999  (the  "Proxy   Statement")  is
incorporated herein by reference.

Item 11.  Executive Compensation

The information appearing under the caption "Executive  Compensation" commencing
on page 10 of the Proxy Statement is incorporated herein by reference.

Item 12.  Security Ownership of Certain Beneficial Owners and Management

The  information  appearing  under the caption  "Security  Ownership  of Certain
Beneficial  Owners of Management" on pages 5 through 9 of the Proxy Statement is
incorporated herein by reference.

Item 13.  Certain Relationships and Related Transactions

The information appearing under the captions "Certain  Relationships and Related
Transactions"  commencing  on page 15 of the  Proxy  Statement  is  incorporated
herein by reference.

                                    12

<PAGE>


                                     PART IV

Item 14.  Exhibits, Financial Statement Schedules and Reports on Form 8-K

(a)      1.   Financial Statements:

              The following consolidated financial statements of the Company and
              its  subsidiaries,  which are set forth on pages 12  through 26 of
              the Company's 1999 Annual Report to  Shareholders  included herein
              as Exhibit 13, are  incorporated  herein by  reference  as part of
              this report.

              Consolidated  Balance  Sheets as of March  28,  1999 and March 29,
              1998.

              Consolidated  Statements  of Income for the years  ended March 28,
              1999, March 29, 1998 and March 30, 1997.

              Consolidated  Statements  of  Stockholders'  Equity  for the years
              ended March 28, 1999, March 29, 1998 and March 30, 1997.

              Consolidated  Statements  of Cash Flows for the years  ended March
              28, 1999, March 29, 1998 and March 30, 1997.

              Notes to Consolidated Financial Statements.

              Report of Independent Accountants.

         2.   Financial Statement Schedules:

              None

         3.   Exhibits:

              2.01         Amended   and   Restated   Agreement   and   Plan  of
                           Reorganization,  dated as of  December  29,  1994 and
                           amended  as of March 17,  1995 among  BNC,  BOT,  the
                           Company  and  BNC  Merger   Corp.   Incorporated   by
                           reference   to   Exhibit   2.01   to  the   Company's
                           Registration  Statement on Form S-4, Registration No.
                           33-88295, made effective March 23, 1995 (the "S-4").

              3.01         Certificate   of   Incorporation   of  the   Company.
                           Incorporated  by reference to Exhibit 3.01 to the S-4
                           and to Exhibit 1 on Form 8-A dated February 12, 1997.

              3.02         By-Laws of the Company.  Incorporated by reference
                           to Exhibit 3.02 to the S-4.

              4.01         Certificate of Designation of Rights, Preferences and
                           Terms for the Series A Convertible Preferred Stock of
                           the  Company.  Incorporated  by  reference to Exhibit
                           4.01 to the  Company's  Current  Report  on Form  8-K
                           dated May 15, 1995.

              4.02         Form  of  Certificate   representing  shares  of  the
                           Company's Common Stock.  Incorporated by reference to
                           Exhibit 4.02 to the S-4.

              4.03         Form  of  Certificate   representing  shares  of  the
                           Company's  Class  A  Common  Stock.  Incorporated  by
                           reference to Exhibit 4.03 to the S-4.

              4.04         Warrant  Agreement  dated  December  1, 1997  between
                           Benihana  and  Douglas M.  Rudolph.  Incorporated  by
                           reference  to Exhibit  4.1 to the  Company's  current
                           report on Form 8-K dated December 1, 1997.

              10.01        License Agreement, dated as of May 15, 1995 between
                           BNC and BOT Inc.  Incorporated by reference to
                           Exhibit 10.01 to the S-4.

              10.02        7 1/2% unsecured  Promissory  Note dated May 15, 1995
                           delivered  by  the  Company  to BOT  as  part  of the
                           consideration  for  the  transfer.   Incorporated  by
                           reference to Exhibit 10.02 to the S-4.

                                       13
<PAGE>


              10.03        Employment Agreement dated May 15, 1995 between Rocky
                           H. Aoki and the Company. Incorporated by reference to
                           Exhibit 10.03 to the S-4.

              10.04        Employment  Agreement dated May 15, 1995 between Joel
                           A.   Schwartz  and  the  Company.   Incorporated   by
                           reference to Exhibit 10.04 to the S-4.

              10.05        Promissory  Note  made by BOT in favor  of BNC  dated
                           September, 1992. Incorporated by reference to Exhibit
                           No. 10.13 to BNC's Annual Report on Form 10-K for the
                           fiscal year ended March 28, 1993.

              10.06        BNC's 1985 Employee's Stock Option Plan. Incorporated
                           by  reference  to Appendix II to BNC Proxy  Statement
                           for  its  Annual  Meeting  of  Stockholders  held  on
                           December  11,  1985.  Incorporated  by  reference  to
                           Exhibit 10.06 to the S-4.

              10.07        1994 Employees' Stock Option Plan Incorporated by
                           reference to Exhibit 10.07 to the S-4.

              10.08        Directors' Stock Option Plan.  Incorporated by
                           reference to Exhibit 10.08 to the S-4.

              10.09        Employment Agreement dated April 1, 1995 between Taka
                           Yoshimoto  and  BNC.  Incorporated  by  reference  to
                           Exhibit 10.09 to the S-4.

              10.10        Employment  Agreement  dated  January 1, 1995 between
                           Michael R. Burris and the  Company.  Incorporated  by
                           reference to Exhibit 10.10 to the S-4.

              10.11        Credit  Agreement,  dated  December  1,  1997,  among
                           Benihana Inc., its  Subsidiaries  named as guarantors
                           and  First  Union  National  Bank,  as Agent  for the
                           Lenders.

              10.12        Benihana Administrative  Incentive Compensation Plan.
                           Incorporated  by  reference  to Exhibit  10.12 to the
                           Company's  Annual  Report on Form 10-K for the fiscal
                           year ended March 31, 1996.

              10.13        1996 Class A Stock Option Plan.  Incorporated by
                           reference to Exhibit A to Benihana Inc. Proxy
                           Statement for its Annual Meeting of Stockholders
                           held on July 19, 1996.

              10.14        Amendment  dated  December  11,  1997  to  Employment
                           Agreement  dated May 15, 1995  between  Rocky H. Aoki
                           and the Company. Incorporated by reference to Exhibit
                           10.14 to the Company's Annual Report on Form 10-K for
                           the fiscal year ended March 29, 1998.

              10.15        Amendment dated May 18, 1998 to Employment  Agreement
                           dated May 15,  1995 and  amended  December  11,  1997
                           between  Rocky H. Aoki and the Company.  Incorporated
                           by reference to Exhibit 10.15 to the Company's Annual
                           Report on Form 10-K for the fiscal  year ended  March
                           29, 1998.

              10.16        Amendment  dated  December  11,  1997  to  Employment
                           Agreement dated May 15, 1995 between Joel A. Schwartz
                           and the Company. Incorporated by reference to Exhibit
                           10.16 to the Company's Annual Report on Form 10-K for
                           the fiscal year ended March 29, 1998.

              10.17        Amendment  dated  December  11,  1997  to  Employment
                           Agreement  dated April 1, 1995 between Taka Yoshimoto
                           and  Benihana  Inc.   Incorporated  by  reference  to
                           Exhibit 10.17 to the Company's  Annual Report on Form
                           10-K for the fiscal year ended March 29, 1998.

              10.18        Amendment  dated  December  11,  1997  to  Employment
                           Agreement  dated  January 1, 1995 between  Michael R.
                           Burris and Benihana Inc. Incorporated by reference to
                           Exhibit 10.18 to the Company's  Annual Report on Form
                           10-K for the fiscal year ended March 29, 1998.

              10.19        1997   Employees   Class   A   Stock   Option   Plan.
                           Incorporated  by  reference  to Exhibit A of Benihana
                           Inc.'s  Proxy  Statement  for its  Annual  Meeting of
                           Stockholders held August 27, 1998.


                                   14


<PAGE>


              10.20        Amendments  to  the  Directors'  Stock  Option  Plan.
                           Incorporated  by  reference  to Exhibit B of Benihana
                           Inc.'s  Proxy  Statement  for its  Annual  Meeting of
                           Stockholders held August 27, 1998.

              13.01        Portions of Annual Report to Stockholders for the
                           year ended March 28, 1999.

              22.01        List of Subsidiaries.  Incorporated by reference to
                           Exhibit No. 22.01 to the S-4.

              23.01        Consent of Deloitte & Touche LLP.

              23.02        Consent of Deloitte & Touche LLP.

(b)      Reports on Form 8-K.

         None.

                                     15
<PAGE>


                               SIGNATURES


Pursuant to the  requirements of Section 13 or 15(d) of the Securities  Exchange
Act of 1934,  the  registrant  has duly  caused  this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

Date:    June 15, 1999          BENIHANA INC.

By:          /s/ Joel A. Schwartz
         ---------------------------
         Joel A. Schwartz, President

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed on the date indicated  above by the following  persons on behalf
of the registrant and in the capacities indicated.

Signature                       Title                           Date
---------                       -----                           ----

/s/ Joel A. Schwartz            President and                   June 15, 1999
------------------------        Director (Principal
Joel A. Schwartz                Executive Officer)


/s/ Taka Yoshimoto              Executive Vice President -      June 15, 1999
------------------------        Restaurant Operations
Taka Yoshimoto                  and Director


/s/ Michael R. Burris           Senior Vice President of        June 15, 1999
------------------------        Finance and Treasurer -
Michael R. Burris               Chief Financial Officer
                                (Principal Financial and
                                Accounting Officer)


/s/ Kevin Aoki                  Vice President -                June 15, 1999
------------------------        Marketing and Director
Kevin Aoki


/s/ Juan C. Garcia              Vice President - Controller     June 15, 1999
------------------------
Juan C. Garcia

/s/ Darwin C. Dornbush          Secretary and Director          June 15, 1999
------------------------
Darwin C. Dornbush


/s/ John E. Abdo                Director                        June 15, 1999
------------------------
John E. Abdo


/s/ Norman Becker               Director                        June 15, 1999
------------------------
Norman Becker


/s/ Robert B. Greenberg         Director                        June 15, 1999
------------------------
Robert B. Greenberg

                                   16



<PAGE>





EXHIBIT 13.01 -  SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>

                                                                     Years Ended
                                        ----------------------------------------------------------------------
                                        March 28,      March 29,      March 30,       March 31,       March 26,
                                          1999           1998           1997            1996            1995
                                        --------       --------       --------        --------        --------
<S>                                     <C>            <C>            <C>             <C>             <C>
                                                        (In thousands, except per share information)
CONSOLIDATED STATEMENT
OF OPERATIONS DATA:

Total revenues                          $119,149       $99,757        $85,204         $81,606         $73,264
Cost of sales                             30,964        25,894         21,658          21,128          20,744
Restaurant expenses                       70,399        58,517         51,246          48,676          44,020
General and administrative
  expenses                                 6,144         5,408          4,217           4,801           4,841
Interest expense, net                      1,644         1,076            904           1,226           1,140
Income before taxes                        9,998         8,862          7,179           5,775           2,519
Net income                                 6,518         5,940          4,947           4,410           2,751
EBITDA                                    15,529        12,938         10,510           9,157           6,027
Pro forma basic earnings
  per common share (1)                      1.06           .96            .81             .73             .42
Pro forma diluted earnings
  per common share (1)                      1.02           .93            .77             .70             .41

CONSOLIDATED BALANCE SHEET
DATA:

Total assets                             $60,868       $58,157        $40,562         $36,257         $33,722
Long-term debt including
  current maturities                      12,407        16,840          6,543           7,495           9,178
Stockholders' equity                      34,699        28,223         22,754          17,326          12,205
Capital expenditures                       7,212         5,079          2,818           2,156           1,264

</TABLE>

(1)  The pro forma basic and diluted  earnings  per common  share were  computed
     using the weighted average shares and common stock equivalents  outstanding
     in each year. The amounts of preferred  dividends and interest expense that
     would  have been  incurred  in the  fiscal  years  ended 1996 and 1995 as a
     result of the acquisition of the BOT Restaurants in fiscal year 1996, which
     was accounted for in a manner similar to a pooling of interests,  have been
     factored in the  calculation of pro forma earnings per common share for all
     periods that are presented prior to the acquisition.

                                    17

<PAGE>


Overview of Fiscal 1999

The Company ended fiscal 1999 with record high revenues, net income and earnings
per share amounts.  Revenues totaled  $119,149,000 in fiscal 1999 as compared to
$99,757,000  in fiscal 1998 and  $85,204,000  in fiscal 1997. Net income totaled
$6,518,000  in  fiscal  1999 as  compared  to  $5,940,000  in  fiscal  1998  and
$4,947,000 in fiscal 1997.  Diluted earnings per share for fiscal 1999 was $1.02
as compared to $.93 in fiscal 1998 and $.77 per share in fiscal 1997.

The Company concluded its program to convert eight of the nine Samurai and Kyoto
restaurants,  acquired in December  1997 with the purchase of Rudy's  Restaurant
Group (Rudy's),  to the Benihana standard of atmosphere,  food quality and level
of service and are now operating under the Benihana brand.  The ninth restaurant
will  operate  under  its  former  identity  as  a  Samurai   although   quality
improvements were made throughout.

During fiscal 1999, the Company opened two restaurants, a Benihana restaurant in
Ontario,  California and a sushi  restaurant in Fort  Lauderdale,  Florida.  The
sushi restaurant, known as Sushi Doraku by Benihana, features a kaiten revolving
conveyor  system to serve sushi to customers as well as table service by waiters
or  waitresses.  The  Company  plans  to  open  two  Sushi  Doraku  by  Benihana
restaurants in fiscal 2000, one in Chicago and the other in Miami Beach.

The  Company  continues  to benefit  from an  overall  strong  economy  and from
favorable  consumer  response  to the  Company's  concept  and  to  the  growing
popularity of sushi products,  which is offered at either separate sushi bars or
at the teppanyaki grills in all of the Company's restaurants.

The  Company's  revenues  consist of sales of food and  beverages in each of the
owned  restaurants and franchise fees and royalties  received from  franchisees.
Cost of food and beverage sales  represents  the direct cost of the  ingredients
for the prepared food and beverages sold.  Restaurant expenses consist of direct
and  indirect  labor,  occupancy  costs,  advertising  and other  costs that are
directly attributed to each restaurant location.

Restaurant  revenues  and  expenses  are  dependent  upon a  number  of  factors
including  the number of  restaurants  in operation  and  restaurant  patronage.
Revenues  are also  dependent  on the  average  check  amount and  expenses  are
additionally dependent upon the costs of food commodities and of beverages sold,
average wage rates,  marketing costs and the costs of interest and administering
restaurant operations.

Management's Outlook

The Company has benefited from a healthy economy over the past several years and
from changes in  demographic  trends both of which leads to increased  frequency
for people to dine out.  However,  diners have more  choices to spend their food
dollars  at a  variety  of  restaurant  concepts  and  at a  growing  number  of
additional  restaurant  locations  opened  by  the  Company's  competitors.  The
competitive  environment  requires that the Company provide outstanding value to
its customers.  Management  believes that an emphasis on quality  service to its
customers  will increase  customer  return  frequency and that the consumer will
accept higher menu prices along with the enhanced dining experience. The Company
has begun a service  management  program to focus the organization on increasing
the value of Benihana to the consumer.

The Company will  continue to grow the  restaurant  base by adding two new owned
Benihanas and two new Sushi Doraku  restaurants.  New restaurant units typically
have  increased  costs  associated  with  pre-opening  expenses such as employee
relocation  and training,  advertising,  and other costs  associated  with a new
operating  restaurant.  So  while a new  restaurant  unit  generally  has  lower
operating   results   than   restaurants   with  more   established   locations,
profitability generally improves over time and investment spending in additional
restaurant units adds to long-term  shareholder  value. The Company also expects
two additional  franchised units will open in fiscal 2000, one in Lima, Peru and
the other in Anchorage,  Alaska.  However,  because of factors  discussed in the
Forward-Looking Information section, there can be no assurances that anticipated
growth in restaurant units or comparable same store sales will result.

Revenues

The  amounts of  revenues  and the  changes in amount and  percentage  change in
amount of revenues  from the  previous  fiscal  year are shown in the  following
tables (in thousands):

                                 18



<PAGE>
<TABLE>
<CAPTION>

                                                                       YEAR ENDED MARCH
                                                                1999         1998         1997
                                                              --------     -------      -------
<S>                                                           <C>          <C>          <C>
Restaurant sales                                              $118,351     $99,062      $84,415
Franchise fees and royalties                                       798         695          789
                                                              --------     -------      -------
Total Revenues                                                $119,149     $99,757      $85,204
                                                              ========     =======      =======
</TABLE>
<TABLE>
<CAPTION>
                                                                        YEAR ENDED MARCH
                                                                1999         1998         1997
                                                              -------      -------      -------
<S>                                                           <C>          <C>          <C>
Amount of change in total revenue from
  the previous year                                           $19,392      $14,553      $ 3,598

Percentage change from the previous year                         19.4%        17.1%         4.4%

Comparable average restaurant sales                           $ 2,598      $ 2,410      $ 2,221

Percentage growth in comparable average restaurant sales          7.8%         8.5%         3.9%

</TABLE>
Year  ended  March 28,  1999  compared  to March 29,  1998 --  Restaurant  sales
increased  $19,289,000  during the year and franchise  revenues  exceeded fiscal
1998 by  $103,000.  The  acquisition  of Rudy's  represented  $9,911,000  of the
increase. Increased revenues at Benihana restaurants opened longer than one year
represented  $6,971,000 of the sales increase.  The Company's two new units, the
traditional Benihana in Ontario,  California and the Sushi Doraku by Benihana in
Fort Lauderdale,  Florida,  contributed $1,618,000 to the increase. The Benihana
Grill units had increased overall sales of $789,000.

Customer counts increased to 5,285,000 (19.1%) from the previous fiscal year. Of
this increase,  7.3% represents  increased traffic at Benihana  restaurants open
over one year.  The remainder is the result of the  acquisition  and the two new
restaurants.  The average check amount increased  slightly to $22.39 from $22.32
in 1998.  Management was successful in its efforts to increase the average check
amount 6% at the  Benihana  Grill  units to  improve  their  profitability.  The
average  check amount at the acquired  units when they were  purchased was lower
than the Company's Benihana units. As the units were converted, menu prices were
increased  to reflect the  improvements  made in food  quality and  standards of
service.

The average  dinner check  amount was $25.06 in 1999  compared to $24.79 in 1998
and the  average  lunch  check  amount was $13.71 in 1999  compared to $13.54 in
1998.

Revenue from  franchising  activities  increased  14.8% as a result of increased
sales of franchisees.

Year  ended  March 29,  1998  compared  to March 30,  1997 --  Restaurant  sales
increased $14,647,000 over fiscal 1997. The increase in sales was a result of an
acquisition  that was  completed  on  December  1, 1997,  the opening of two new
restaurants  and an increase in guest counts at units opened for longer than one
year. The nine Rudy's restaurants contributed $5,994,000 of the increase for the
thirteen  weeks  they  were  owned  by the  Company.  The  two  new  restaurants
represented $1,475,000 of the increase.  Guest counts at units opened for longer
than one year  increased  by  295,751  guests,  contributing  $7,178,000  to the
increase.  The average check size in 1998 was $22.32 compared to $22.42 in 1997.
The decrease in the average check amount was largely a result of a lower average
check  amount  at the  restaurants  acquired  and  because  there  was a  higher
proportion of lunch  traffic  which  carries a lower  average check amount.  The
average  dinner check amount  increased to $24.79 in 1998  compared to $24.73 in
1997.  The average  lunch check amount  increased to $13.54 in 1998  compared to
$13.38 in 1997.

Costs and Expenses

Cost of restaurant  food and beverage sales,  which are generally  variable with
sales, directly increased with changes in revenues for each of the fiscal years.
The following table reflects the proportion  that the various  elements of costs
and expenses bore to sales and the changes in amounts and percentage  changes in
amounts from the previous fiscal year.

                                     19


<PAGE>
<TABLE>
<CAPTION>

                                                                       YEAR ENDED MARCH
COST AS PERCENTAGE OF RESTAURANT SALES:                         1999         1998         1997
                                                                ----         ----         ----
<S>                                                           <C>          <C>          <C>
Cost of food and beverage sales                                 26.1%       26.1%        25.7%
Restaurant expenses                                             59.5%       59.1%        60.7%
General and administrative expenses                              5.2%        5.5%         5.0%

AMOUNT OF CHANGE FROM PREVIOUS
YEAR (IN THOUSANDS):
Cost of restaurant food and beverage sales                   $ 5,070      $4,236       $  530
Restaurant expenses                                          $11,882      $7,271       $2,570
General and administrative expenses                          $   736      $1,191       $ (584)
Interest expense, net                                            568         172         (322)

Percentages increase(decrease):
Cost of restaurant food and beverage sales                      19.6%       19.6%         2.5%
Restaurant expenses                                             20.3%       14.2%         5.3%
General and administrative expenses                             13.6%       28.2%       (12.2%)
Interest expense, net                                           52.8%       19.0%       (26.3%)
</TABLE>
Year ended March 28, 1999 compared to March 29, 1998  --   The cost of food and
beverage sales held constant as a percentage of sales at 26.1%.

Restaurant  expenses  increased  by  $7,242,000  from  the  additional  expenses
associated with the units acquired with the Rudy's Restaurant Group acquisition.
Restaurant  expenses also increased as a result of increased customer counts and
from the full year effect of increases in the minimum wage.

General and  administrative  expenses  decreased as a percentage  of sales.  The
total dollar amount increased, however, from additional salaries for newly hired
key  employees  and from  normal  increases  in  compensation.  Amortization  of
goodwill  from the Rudy's  acquisition  represented  $349,000 of the increase in
general and administrative expenses.

Interest  expense,  net  increased by $568,000  over the  preceding  year.  This
increase results from borrowings made to acquire Rudy's.

Year ended  March 29,  1998  compared  to March 30, 1997 -- The cost of food and
beverage  sales  increased  in  total  dollar  amount  and when  expressed  as a
percentage  of sales.  The increase in cost of sales as a result of increases in
customer counts was $3,865,000.  Commodity cost  increases,  principally  higher
seafood  costs,  represented  the  remaining  amount of the  increase in cost of
sales.

Restaurant  expenses increased in total amount but decreased when expressed as a
percentage of sales. The nine  restaurants  acquired during the year represented
$3,315,000 of the  increase.  The increase in sales also  increased  other costs
that  vary with  sales  volume,  such as credit  card  processing  expenses  and
percentage  rent expense.  In addition,  advertising  and  promotional  expenses
increased as a result of the Company's increased marketing efforts in television
advertising and marketing costs for the sushi bars.  Spending on advertising for
the acquired restaurants by the former owner was significantly less than that of
the Company.  Consequently,  restaurant  expenses  decreased as a percentage  of
sales.

General  and  administrative  expenses  increased  in total  dollar  amount when
compared to the comparable periods of the prior year. The increase resulted from
increases in salaries and benefits,  miscellaneous expenses and depreciation and
amortization.  The increase in salaries and benefits  resulted from increases in
the salaries and bonuses of executive officers in accordance with amended and or
new  employment  agreements  and from  additional  personnel.  The  increase  in
miscellaneous  expenses reflects a one-time expense from the Rudy's acquisition.
The increase in depreciation and amortization  expense resulted largely from the
amortization of goodwill from the acquisition of Rudy's.

Interest  expense,  net increased as a result of additional  bank  borrowings of
$9,400,000 to acquire Rudy's.

                                   20


<PAGE>


Income Taxes

The Company's  effective tax rate  increased to 34.8% in 1999 from 33.0% in 1998
and 31.1% in 1997. The increase in 1999 reflects  increased  state income taxes.
The  increase  from 1997 to 1998 was a result of state  income  tax  refunds  of
$160,000 received in 1997.

Liquidity and Capital Resources

The Company does not require  significant  amounts of inventory or  receivables,
and as is typical of most  restaurant  companies,  the Company  does not have to
provide  financing for such assets and operates with a minimum amount or deficit
of working capital.

The Company requires capital principally for the development of new restaurants,
acquisition of other restaurant  businesses,  and the  refurbishment of existing
restaurant units.

As of March 28, 1999, the Company had available  $15,000,000 under its revolving
loan facility.  Management  believes that the amount  available under its credit
facility  together  with  internally  generated  funds from  operations  provide
sufficient  cash  resources  for  anticipated  capital  improvements  as well as
construction and opening of new restaurants.

The  Company has signed  leases for four new  restaurants.  Estimated  remaining
expenditures  to  complete  construction  and open  these  new  restaurants  are
expected  to  be  $4,800,000.  Two  of  the  new  restaurants  will  operate  as
traditional  Benihana  restaurants in Monterey and Santa Monica,  California and
are  projected  to open in the  spring of 2000.  The other two will be  operated
under the Company's new sushi concept,  Sushi Doraku by Benihana in Miami Beach,
Florida and Chicago, Illinois and are scheduled to open in the fall of 1999.

Seasonality and Quarterly Results

The Company  operates on a 52/53 week fiscal year; the first quarter consists of
16 weeks and the remaining three quarters  consist of 12 weeks,  except that the
fourth  quarter  will have 13 weeks when the entire  fiscal year  consists of 53
weeks.

Although the Company's  business is not highly seasonal,  the Company does enjoy
greater than normal customer  traffic on certain days of the year:  Mother's day
falls in the first  quarter,  Christmas day and New Year's Eve fall in the third
quarter and Valentine's falls in the fourth quarter.

Forward-Looking Information

This annual report contains various "forward-looking statements" which represent
management's  expectation or beliefs  concerning  future events,  including unit
growth, future capital expenditures,  and other operating information.  A number
of factors could, either individually or in combination, cause actual results to
differ  materially  from  those  included  in  the  forward-looking  statements,
including,   without   limitation,   changes  in  consumer  dining  preferences,
fluctuation in commodity prices, availability of qualified employees, changes in
the general  economy and industry  cyclicality,  changes in consumer  disposable
income,  competition  within the restaurant  industry,  availability of suitable
restaurant locations, harsh weather conditions in areas in which the Company and
its franchisees operate restaurants or plan to build new restaurants  acceptance
of the Company's  concepts in new locations,  changes in  governmental  laws and
regulations affecting labor rates, employee benefits, and licensing, and ability
to complete new restaurant  construction  and obtain  governmental  permits on a
reasonably timely basis and other factors.

Year 2000

The Year 2000 (Y2K) issue is the result of computer  programs  using two digits,
as opposed to four digits,  to indicate the year.  Computer  systems that cannot
interpret data beyond 1999 may fail and cause critical business  processes to be
materially disrupted.  Such failures may occure not only within our own systems,
but also in the systems of vendors in the supply chain,  credit card  processors
and the financial institutions upon which we rely. The Company has implemented a
plan to  address  the Y2K issue in steps to  mitigate  risks in our  proprietary
systems and to identify Y2K risks in our supply chain.

                                     21

<PAGE>


The risks in the Company's own systems were identified to include  point-of-sale
systems at the restaurants and systems upon which  management  relies to provide
information to control and guide operations and prepare  financial  information.
The Company has tested the  point-of-sale  systems used in the  restaurants  and
management  has  determined  that they were  compliant  with Y2K. The  Company's
management  information  systems  were not in  compliance  with Y2K.  Management
evaluated  various  courses  of  action  to make  the  information  systems  Y2K
compliant.  Management  determined  that the  system  could  have  been made Y2K
compliant,  but they were not sufficient to support  future  growth.  Management
decided to replace existing financial systems,  and after conducting  interviews
with several software  vendors,  management  contracted with a major supplier of
enterprise  resource planning systems to improve our core financial  information
and restaurant logistical capabilities beyond the capabilities of the previously
existing financial systems.  The new system has been installed and is operating.
As of May 1999, management believes that these systems are Y2K compliant and are
reliable.  The external costs  associated  with  implementing  these systems are
approximately  $425,000,  including  the  cost  of  software  applications,  the
hardware  necessary  to support the new  applications  software  and  contracted
services used to augment internal staff implementing the new system.

The Company's  most  significant  vendors were  formally  contacted to determine
whether there would be material disruptions in the supply chain. The Company has
no significant system interfaces with vendors.

The  Company's  supply  chain  is  composed  of  numerous  different   suppliers
throughout the country.  Each of the  restaurants  purchase food,  beverages and
supplies  local to their  markets,  therefore,  the  Company  is not  materially
reliant on a few suppliers and the Company believes that the risk is minimal due
to the  failure of any one  vendor.  However,  there may be  unidentifiable  Y2K
problems  further up the supply chain, the effects of which cannot be predicted.
Additionally,  the Company relies upon utility service for electricity,  gas and
water and may incur disruption in specific market areas.

Our  significant  vendors  indicated to us that they are either Y2K compliant or
are currently  taking measures to become Y2K compliant  before  disruptions that
might impact the Company  would  occur.  Letters have been sent to all banks and
the credit card processors with which the Company has significant  relationships
and Company  management has reviewed and evaluated their  responses.  The bank's
and the credit card  processing  companies'  responses  to the Company were that
they are Y2K compliant.

New Accounting Standards

The  effects  of new  accounting  standards,  adopted or to be adopted in future
periods, are discussed in the Summary of Significant  Accounting Policies in the
notes to the consolidated financial statements.

Quantitative and Qualitative Disclosures About Market Risk

The Company is exposed to market risk from changes in interest rates on debt and
changes in commodity prices. A discussion of the Company's accounting policy for
derivative  financial  instruments  is included  in the  Summary of  Significant
Accounting Policies in the notes to the consolidated financial statements.

The  Company's  net  exposure to interest  rate risk  consists of floating  rate
borrowings  that are benchmarked to US and European  short-term  interest rates.
The Company may from time-to-time  utilize interest rate swaps to manage overall
borrowing costs and reduce  exposure to adverse  fluctuations in interest rates.
The Company does not use  derivative  instruments  for trading  purposes and the
Company  has a policy to that  effect.  At March 28,  1999,  the  Company  had a
financial  derivative with a notional amount of $5,488,000 against floating rate
debt of $11,250,000.  A one percentage  point interest charge on the outstanding
balance of the variable rate debt as of March 28, 1999 would not be material.

The Company  purchases  certain  commodities such as beef,  chicken and seafood.
These  commodities  are  purchased  based upon market  prices  established  with
vendors.  The Company  does not use  financial  instruments  to hedge  commodity
prices  because these  purchase  arrangements  help to control the ultimate cost
paid and any cost aberrations have historically been short term in nature.

                                  22
<PAGE>

BENIHANA INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EARNINGS

 (In thousands, except per share information)
<TABLE>
<CAPTION>

Year ended                                                  March 28,      March 29,      March 30,
                                                              1999           1998           1997
--------------------------------------------------------------------------------------------------
<S>                                                         <C>            <C>            <C>
Revenues

Restaurant sales                                            $118,351       $99,062        $84,415
Franchise fees and royalties                                     798           695            789
--------------------------------------------------------------------------------------------------
Total revenues                                               119,149        99,757         85,204
--------------------------------------------------------------------------------------------------

Costs and Expenses

Cost of food and beverage sales                               30,964        25,894         21,658
Restaurant expenses                                           70,399        58,517         51,246
General and administrative expenses                            6,144         5,408          4,217
Interest expense, net                                          1,644         1,076            904
--------------------------------------------------------------------------------------------------
Total costs and expenses                                     109,151        90,895         78,025
--------------------------------------------------------------------------------------------------

Income from operations before income taxes                     9,998         8,862          7,179
Income tax provision                                           3,480         2,922          2,232
--------------------------------------------------------------------------------------------------

Net Income                                                  $  6,518      $  5,940        $ 4,947
==================================================================================================

Earnings Per Share

Basic earnings per common share                             $   1.06      $    .96        $   .81
Diluted earnings per common share                           $   1.02      $    .93        $   .77

</TABLE>
See notes to consolidated financial statements

                                    23

<PAGE>

BENIHANA INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

 (In thousands, except share information)
<TABLE>
<CAPTION>
                                                                                 March 28,        March 29,
                                                                                   1999             1998
----------------------------------------------------------------------------------------------------------
<S>                                                                              <C>              <C>
Assets
Current assets:
  Cash and cash equivalents                                                      $ 1,684          $ 1,169
  Receivables (net of allowance for doubtful accounts of $35
    in 1999 and $0 in 1998, respectively)                                            269              385
  Inventories                                                                      3,106            3,768
  Prepaid expenses                                                                   635              758
----------------------------------------------------------------------------------------------------------
Total current assets                                                               5,694            6,080

Property and equipment, net                                                       37,128           32,998
Deferred income taxes, net                                                         3,385            3,781
Goodwill, net                                                                     12,150           12,663
Other assets                                                                       2,511            2,635
----------------------------------------------------------------------------------------------------------

                                                                                 $60,868          $58,157
==========================================================================================================
Liabilities and Stockholders' Equity
Current liabilities:
  Accounts payable and accrued expenses                                          $10,497          $ 9,323
  Current maturities of long-term debt and
    obligations under capital leases                                               2,298            1,939
----------------------------------------------------------------------------------------------------------
Total current liabilities                                                         12,795           11,262

Long-term debt                                                                    10,672           15,407
Obligations under capital leases                                                   2,702            3,265

Stockholders' Equity:
     Series A  Convertible  Preferred  stock - $1.00  par  value;
       authorized - 5,000,000 shares, issued and outstanding -
       700 shares and 1,000 shares, respectively                                       1                1
     Common stock - $.10 par value; convertible into Class A Common,
       authorized - 12,000,000 shares, issued and
       outstanding - 3,571,616 and 3,571,116 shares, respectively                    357              357
     Class A Common  stock - $.10 par value;  authorized  -  20,000,000
       shares, issued and outstanding -
       2,563,443 and 2,517,463 shares, respectively                                  256              252
     Additional paid-in capital                                                    4,604           14,600
     Retained earnings                                                            19,597           13,129
     Treasury stock - 9,177 shares at cost                                          (116)            (116)
----------------------------------------------------------------------------------------------------------
Total stockholders' equity                                                        34,699           28,223
----------------------------------------------------------------------------------------------------------

                                                                                 $60,868          $58,157
==========================================================================================================
</TABLE>
See notes to consolidated financial statements

                                      24
<PAGE>


BENIHANA INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(In thousands, except share information)
<TABLE>
<CAPTION>
                                                                Class A      Additional                                  Total
                                        Preferred    Common     Common         Paid-in       Retained     Treasury    Stockholders'
                                          Stock      Stock       Stock         Capital       Earnings       Stock        Equity
----------------------------------------------------------------------------------------------------------------------------------
<S>                                     <C>          <C>        <C>          <C>             <C>          <C>         <C>
Balance, March 31, 1996                 $      2     $  352     $    232     $ 14,285        $  2,455     $           $17,326
  Net income                                                                                    4,947                   4,947
  Issuance of 41,000  shares of
    stock under exercise of options                       4                       178                                     182
  Purchase of 9,177 shares of stock                                                                           (116)      (116)
  Dividend on preferred stock                                                                    (120)                   (120)
  Issuance of 300 shares of stock
    for incentive compensation                                                      3                                       3
  Issuance of 200,000 shares under
    exercise of warrants                                              20          512                                     532
----------------------------------------------------------------------------------------------------------------------------------

Balance, March 30, 1997                       2         356          252       14,978           7,282         (116)    22,754
  Net income                                                                                    5,940                   5,940
  Fair market value of warrant issued
    in connection with the acquisition
    of Rudy's                                                                     563                                     563
  Redemption of preferred stock              (1)                                 (999)                                 (1,000)
  Dividend on preferred stock                                                                     (93)                    (93)
  Issuance of 14,913 shares of stock
    under exercise of options                             1                        58                                      59
----------------------------------------------------------------------------------------------------------------------------------

Balance, March 29, 1998                       1         357          252       14,600          13,129         (116)    28,223
  Net income                                                                                    6,518                   6,518
  Conversion of 300 shares of preferred
    stock into 45,113 shares of Class A
    Common Stock                                                       4           (4)
  Dividend on preferred stock                                                                     (50)                    (50)
  Issuance of 1,367 shares of stock
    under exercise of options                                                       8                                       8
----------------------------------------------------------------------------------------------------------------------------------

Balance, March 28, 1999                 $     1     $   357       $  256      $14,604         $19,597      $  (116)   $34,699
==================================================================================================================================
</TABLE>
See notes to consolidated financial statements.

                                       25

<PAGE>

BENIHANA INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
     (In thousands)
                                                                       March 28,      March 29,      March 30,
                                                                         1999           1998           1997
-------------------------------------------------------------------------------------------------------------
<S>                                                                    <C>            <C>            <C>
Operating Activities:
   Net income                                                          $ 6,518        $5,940         $4,947
   Adjustments to reconcile net income to net cash
       provided by operating activities:
     Depreciation and amortization                                       3,887         3,000          2,427
     Issuance of common stock for incentive compensation                                                  3
     Deferred income taxes                                                 396         1,043             90
     Change in operating assets and liabilities that provided
     (used) cash:
       Receivables                                                         116           233           (290)
       Inventories                                                         662          (264)        (1,315)
       Prepaid expenses                                                    123           135             83
       Other assets                                                       (150)         (494)          (124)
       Accounts payable and accrued expenses                             1,174         1,652            479
----------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities                               12,726        11,245          6,300
----------------------------------------------------------------------------------------------------------------

Investing Activities:
  Payment for purchase of Rudy's Restaurant Group
    net of cash acquired                                                            (19,138)
  Expenditures for property and equipment                               (7,212)      (5,079)          (2,818)
  Other                                                                    (18)          (1)             (35)
----------------------------------------------------------------------------------------------------------------
Net cash (used in) investing activities                                 (7,230)     (24,218)          (2,853)
----------------------------------------------------------------------------------------------------------------

Financing Activities:
  Preferred stock redeemed                                                           (1,000)
  Dividends paid on preferred stock                                        (50)         (93)            (120)
  Proceeds from issuance of long-term debt                                           18,000
  Repayment of long-term debt and obligations under
    capital leases                                                      (4,939)      (9,867)          (1,604)
  Proceeds from issuance of common stock                                                 59              714
  Purchase of treasury stock                                                                            (116)
  Conversion of preferred stock                                              8
----------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities                     (4,981)       7,099           (1,126)
----------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents                       515       (5,874)           2,321
Cash and cash equivalents, beginning of year                             1,169        7,043            4,722
----------------------------------------------------------------------------------------------------------------

Cash and cash equivalents, end of year                                  $1,684       $1,169           $7,043
================================================================================================================
Supplemental Cash Flow Information
Cash paid during the fiscal year for:
  Interest                                                              $1,159       $  860       $  733
  Income taxes                                                          $2,992       $2,804        $2,061

Noncash investing and financing activities:
  Fair market value of warrant issued                                                $  563
  Non-competition agreement                                                          $  684

Business acquisitions, net of cash acquired:
  Fair value of assets acquired, other than cash                                     $ 8,888
  Liabilities assumed                                                                 (2,577)
  Purchase price in excess of the net assets acquired                                 12,827
                                                                                     -------
                                                                                     $19,138
                                                                                     =======
During the fiscal year ended March 28, 1999, 300 shares of
Preferred  stock were converted into 45,113 shares of Class A Common Stock

See notes to consolidated financial statements
</TABLE>
                                    26
<PAGE>


BENIHANA INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED MARCH 28, 1999, MARCH 29, 1998 AND MARCH 30, 1997

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         Business - Benihana Inc. owns and operates 51 Japanese teppanyaki-style
         and sushi restaurants and franchises twelve others. The Company has the
         rights to open, license and develop Benihana  restaurants in the United
         States, Central and South America and the Caribbean islands.

         On December 1, 1997 the Company acquired Rudy's  Restaurant Group, Inc.
         (Rudy's),  a company  that owns nine  teppanyaki-style  Japanese  theme
         restaurants  similar to those owned by the  Company.  The Company  paid
         approximately  $20,000,000  and  issued a warrant to  purchase  200,000
         shares of the  Company's  Class A Common Stock at $8.00 per share.  The
         excess of the  purchase  price over the  tangible  and  intangible  net
         assets  acquired of  approximately  $13 million has been  allocated  to
         goodwill.

         Operating Segments - Statement of Financial  Accounting Standards (FAS)
         131   "Disclosures   about   Segments  of  an  Enterprise  and  Related
         Information",   requires   disclosure  of  certain   information  about
         products,  services  and  geographic  territories  in which the Company
         operates,  and major  customers.  The Company  operates within only one
         reportable operating segment.

         Use  of  Estimates  -  The  preparation  of  financial   statements  in
         conformity with generally accepted accounting  principles requires that
         management  make  estimates  and  assumptions  that affect the reported
         amounts  of  assets  and  liabilities  at the  date  of  the  financial
         statements and the reported  amounts of revenue and expenses during the
         reporting  period.  Actual  amounts and results could differ from those
         estimates.

         Fiscal Year - The  Company's  fiscal year is a 52/53 week year.  All of
         years presented in these financial statements consisted of 52 weeks.

         Principles of  Consolidation - The  consolidated  financial  statements
         include the accounts of Benihana Inc., and all of its subsidiaries.  In
         consolidation,  significant  intercompany accounts and transactions are
         eliminated.

         Cash and Cash  Equivalents  - The Company  considers  all highly liquid
         investment  instruments  purchased  with an initial  maturity  of three
         months or less to be cash equivalents.

         Inventories  -  Inventories,  which consist  principally  of restaurant
         operating  supplies and food and  beverage,  are stated at the lower of
         cost (first-in, first-out method) or market.

         Depreciation  and  Amortization -  Depreciation  and  amortization  are
         computed by the  straight-line  method over the  estimated  useful life
         (buildings - 30 years, restaurant furniture, fixtures and equipment - 8
         years,  office equipment - 8 years,  personal  computers,  software and
         related  equipment  - 3 years,  and  leaseholds  - lesser  of the lease
         terms,  including renewal options,  or useful life).  Goodwill is being
         amortized on a straight-line basis over a 25 year period, the estimated
         benefit period for the business acquired.  Accumulated  amortization of
         goodwill was $677,000 at March 28, 1999.

         Accounting  for  Long-Lived  Assets  - The  Company  evaluates  its net
         investment  in  restaurant   properties  and  goodwill  for  impairment
         whenever events or changes in circumstances indicate

                                         27

<PAGE>


         that the carrying amounts of an asset may not be recoverable.  During
         the periods presented, no such impairment was incurred.

         Accounting for the Costs of Computer Software Developed or Obtained for
         Internal  Use - The  Company  adopted  in  fiscal  1999,  Statement  of
         Position  (SOP) 98-1  "Accounting  for the Costs of  Computer  Software
         Developed  or  Obtained  for  Internal  Use," which was issued in March
         1998. SOP 98-1 identifies the characteristics of internal-use  software
         and  specifies  that once the  preliminary  project  stage is complete,
         certain  external  direct costs,  certain direct  internal  payroll and
         payroll-related   costs  and  interest   costs   incurred   during  the
         development of computer software for internal use should be capitalized
         and  amortized.  The Company  reflects all  unamortized  costs in other
         assets and amortizes such costs over a three-year period.

         Derivative  Instruments  - From  time to  time,  The  Company  utilizes
         interest rate swaps to hedge its exposure to  fluctuations  in variable
         interest rates. The Company recognizes the interest  differential to be
         paid or received on an interest  rate swap as an adjustment to interest
         expense as the differential  occurs. If the Company was to terminate an
         interest rate swap, any gain or loss realized upon termination would be
         deferred and amortized to interest  expense over the remaining  term of
         the  underlying  debt  instrument it was intended to modify or would be
         recognized  immediately if the underlying  debt instrument were settled
         prior to maturity.

         Stock-Based  Compensation  - The Company  applies the  intrinsic  value
         method in accounting for stock options. Accordingly,  compensation cost
         for stock  options is  measured  as the  excess,  if any, of the quoted
         market  price of the  Company's  stock  at the  date of grant  over the
         amount an employee must pay to acquire the stock.

         Earnings  Per Share - Basic  earnings  per common  share is computed by
         dividing net income  available to common  shareholders  by the weighted
         average  number of common shares  outstanding  during each period.  The
         diluted earnings per common share computation  includes dilutive common
         share equivalents issued under the Company's various stock option plans
         and dilutive convertible preferred stock.

         The computation of basic earnings per common share and diluted earnings
         per common share for each year is shown below (in thousands):

<TABLE>
<CAPTION>
                                                          March 28,      March 29,      March 30,
                                                            1999           1998           1997
                                                          --------       --------       --------
<S>                                                       <C>            <C>            <C>
         Income from operations                           $6,518         $5,940         $4,947
         Less preferred dividends                            (50)           (93)          (120)
                                                          ------         ------         ------
         Income for computation of basic
           earnings per common share                       6,468          5,847          4,827
         Convertible preferred dividends                      50             93            120
                                                          ------         ------         ------
         Income for computation of diluted
           earnings per common share                      $6,518         $5,940         $4,947
                                                          ======         ======         ======

         Weighted average number of common
           shares used in basic EPS                        6,105          6,080          5,947
         Effect of dilutive securities:
           Stock options and warrants                        180             86            144
           Convertible preferred shares                      134            233            300
                                                          ------         ------         ------
         Weighted average number of common
           shares and dilutive potential common
           shares used in diluted EPS                      6,419          6,399          6,391
                                                          ======         ======         ======

</TABLE>
                                     28


<PAGE>


         Comprehensive  Income - The Company  adopted the provisions of FAS 130,
         "Reporting  Comprehensive  Income." FAS 130  establishes  standards for
         reporting  and  display  of  comprehensive  income  and its  components
         (revenues, expenses, gains and losses) in a full set of general-purpose
         financial statements.  There are no items requiring separate disclosure
         in accordance with FAS 130.

         New  Accounting  Standards  Not Yet  Adopted - In June  1998,  FAS 133,
         "Accounting  for Derivative  Instruments  and Hedging  Activities"  was
         issued.  The new statement  requires all  derivatives to be recorded on
         the balance sheet at fair value and  establishes  new accounting  rules
         for hedging instruments. The statement is effective for years beginning
         after June 15, 1999.  Company  management  is assessing the impact this
         statement will have on the consolidated financial statements,  but does
         not currently believe it will be material.

         Reclassifications  - Certain prior year amounts have been  reclassified
         to conform to the fiscal year 1999 presentation.

2.       FAIR VALUE OF FINANCIAL INSTRUMENTS

         The Company has estimated the fair value of financial  instruments that
         are included as assets and liabilities in the accompanying consolidated
         balance  sheets.  The estimated  fair value has been  determined by the
         Company using available  market  information and appropriate  valuation
         methodologies.   However,   considerable   judgment   is   required  in
         interpreting data to develop such estimates. Accordingly, the estimates
         presented herein are not necessarily indicative of the amounts that the
         Company  could  realize  in a  current  market  exchange.  The  use  of
         different market  assumptions could have a material effect on estimated
         fair  value.  The  carrying  value  and  estimated  fair  value  of the
         financial  instruments  held by the  Company  as of March 28,  1999 and
         March 29, 1998 are as follows (in thousands):
<TABLE>
<CAPTION>
                                                              March 28, 1999                 March 29, 1998
                                                        -------------------------       -----------------------
                                                        Carrying       Estimated        Carrying     Estimated
                                                          Value        Fair Value         Value      Fair Value
                                                        --------       ----------       --------     ----------
<S>                                                     <C>            <C>              <C>          <C>
         Financial assets
            Cash and cash equivalents                   $ 1,684        $ 1,684          $ 1,169      $ 1,169
            Receivables                                 $   430        $   422          $   628      $   612
            Cash surrender value of officer's
               life insurance                           $   324        $   324          $   306      $   306

         Financial liabilities
            Bank and other indebtedness                 $12,407        $12,636          $16,840      $17,091
</TABLE>
         The following  methods and  assumptions  were used to estimate the fair
         value  of  the  Company's  financial   instruments  for  which  it  was
         practicable to estimate that value:

         Cash and cash equivalents
              The  carrying  value   approximates  fair  value  because  of  the
              short-term nature of the instruments.

         Receivables
              The  carrying  value   approximates  the  fair  value  of  current
              receivables because of the short-term nature of these instruments.
              The fair value of long-term  receivables  was  estimated  based on
              discounted cash flows expected to be received using interest rates
              at which similar loans are made to borrowers  with similar  credit
              ratings.

                                       29


<PAGE>

         Long-term debt
              The fair value of outstanding  borrowings under its long-term debt
              agreement  approximates the carrying value since the interest rate
              floats  subject to market  conditions.  The value of the  interest
              rate swap  agreement  included  in the fair  value of the debt was
              obtained from dealer quotes which  represent the estimated  amount
              the Company would receive or pay to terminate the agreement taking
              into consideration current market interest rates.

3.       INVENTORIES

              Inventories consist of (in thousands):
<TABLE>
<CAPTION>
                                                                     March 28,          March 29,
                                                                       1999               1998
                                                                     --------           --------
<S>                                                                  <C>                <C>
              Food and beverage                                      $1,147             $1,574
              Supplies                                                1,959              2,194
                                                                     ------             ------

                                                                     $3,106             $3,768
                                                                     ======             ======
4.       PROPERTY AND EQUIPMENT
</TABLE>
<TABLE>
<CAPTION>
              Property and equipment consist of (in thousands):
                                                                     March 28,          March 29,
                                                                       1999               1998
                                                                     --------           --------
<S>                                                                  <C>                <C>
              Land                                                   $ 5,925            $  5,925
              Buildings                                               11,373              10,224
              Leasehold improvements                                  32,744              28,325
              Restaurant furniture, fixtures, and equipment           17,753              16,288
              Restaurant facilities and equipment under
                 capital leases                                        7,638               7,655
                                                                     -------            --------
                                                                      75,433              68,417

              Less accumulated depreciation and amortization
                 (Including accumulated amortization of restaurant
                 facilities and equipment under capital leases
                 of $6,203 and $5,907 in 1999 and 1998,
                 respectively)                                        39,648              36,657
                                                                     -------             -------
                                                                      35,785              31,760
              Construction in progress                                 1,343               1,238
                                                                     -------             -------

                                                                     $37,128             $32,998
                                                                     =======             =======
</TABLE>

                                   30
<PAGE>

5.       ACCOUNTS PAYABLE AND ACCRUED EXPENSES

              Accounts payable and accrued expenses consist of (in thousands):
<TABLE>
<CAPTION>
                                                                     March 28,         March 29,
                                                                       1999              1998
                                                                     --------          --------
              <S>                                                    <C>               <C>
              Accounts payable                                       $ 3,761           $ 3,766
              Accrued payroll, incentive
                 compensation and  related taxes                       2,826             2,500
              Accrued gift certificates                                  550               420
              Accrued sales taxes                                        634               596
              Accrued property taxes                                     403               384
              Accrued percentage rent                                    545               537
              Other accrued operating expenses                         1,778             1,120
                                                                     --------          ------

                                                                     $10,497           $ 9,323
                                                                     =======           =======
</TABLE>
6.       LEASE OBLIGATIONS

              The Company generally operates its restaurants in leased premises.
              The typical restaurant  premises lease is for a term of between 15
              to 25 years with renewal options  ranging from 5 to 25 years.  The
              leases  generally  provide  for the  payment  of  property  taxes,
              utilities,  and various  other use and  occupancy  costs.  Rentals
              under certain  leases are based on a percentage of sales in excess
              of a certain  minimum level.  Certain leases provide for increases
              based upon the changes in the consumer price index. The Company is
              also obligated  under various leases for restaurant  equipment and
              for office space and equipment.

              Minimum payments under lease  commitments are summarized below for
              capital and operating  leases.  The imputed interest rates used in
              the calculations for capital leases vary from 9.75% to 12% and are
              equivalent  to the rates which would have been incurred to borrow,
              over a similar term, the amounts  necessary to purchase the leased
              assets.

              The amounts of  operating  and capital  lease  obligations  are as
              follows (in thousands):

<TABLE>
<CAPTION>
                                                                Operating         Capital
                                                                  Leases          Leases
                                                                ---------         -------
              <S>                                               <C>               <C>
              Fiscal year ending:
              2000                                              $ 4,458           $   893
              2001                                                3,736               893
              2002                                                3,513               893
              2003                                                3,399               784
              2004                                                3,330               458
              Thereafter                                         27,149               315
                                                                -------           -------
              Total minimum lease payments                      $45,585             4,236
                                                                =======
              Less amount representing interest                                       971
                                                                                  -------
              Total obligations under capital leases                                3,265
              Less current maturities                                                 563
                                                                                  -------
              Long-term obligations under capitalized
                 leases at March 28, 1999                                         $2,702
                                                                                  ======

</TABLE>
                                     31

<PAGE>
              Rental expense consists of (in thousands):
<TABLE>
<CAPTION>
                                                                       March 28,      March 29,      March 30,
                                                                         1999           1998           1997
                                                                       --------       --------       --------
              <S>                                                      <C>            <C>            <C>
              Minimum rental commitments                               $4,844         $3,957         $3,310
              Rental based on percentage of sales                       1,491          1,253          1,036
                                                                       ------         ------         ------

                                                                       $6,335         $5,210         $4,346
                                                                       ======         ======         ======

</TABLE>
7.       LONG-TERM DEBT

              Long-term debt consists of (in thousands):
<TABLE>
<CAPTION>
                                                                       March 28,      March 29,
                                                                         1999           1998
                                                                       --------       --------
              <S>                                                      <C>            <C>
              Notes payable - bank (see below):
                Term loan                                              $11,250        $12,000
                Revolving line of credit                                                3,000
              Notes payable - other:
                7 1/2% unsecured promissory note payable
                   in monthly installments of $13                          174            313
                7% promissory note payable in monthly
                   installments of $30                                     347            670
                7% unsecured note obligation payable in
                   monthly installments of $7                              143            210
              Note obligation under terms of non
                competition agreement with former shareholder
                of Rudy's - discounted at 8%, payable in
                monthly installments $17                                   493            647
                                                                       -------       --------
                                                                        12,407         16,840
              Less current portion                                       1,735          1,433
                                                                       -------       --------

                                                                       $10,672        $15,407
                                                                       =======       ========
</TABLE>
              The Company has a credit  arrangement  with a bank that includes a
              term loan and a revolving  line of credit under which  $15,000,000
              was  available  at March  28,  1999.  Interest  under  the  credit
              arrangement  accrues at the Company's  option at either prime rate
              plus a  margin  up to 1.0% or at LIBOR  plus a  margin  of 1.0% to
              2.25%.  At March 28,  1999,  interest  was  accrued at 7.31%.  The
              applicable interest rate margin varies with the Company's leverage
              ratio   (defined  as  earnings   before   interest,   taxes,   and
              depreciation and amortization divided by funded indebtedness). The
              final  maturity date of both the term loan and the revolving  line
              of credit is March 31, 2004. The credit arrangement  restricts the
              Company  from  making  dividend  payments  and  purchases  of  the
              Company's  common  equity  securities  and limits  the  amounts of
              capital expenditures that the Company can make annually during the
              term of the agreement.  The credit  arrangement  also requires the
              Company to achieve  certain  ratios of operating cash flow to debt
              and  other   financial   benchmarks.   The  credit   agreement  is
              collateralized by a security interest in the Company's assets.

              In fiscal 1996,  the Company  entered  into a seven year  interest
              rate  swap  agreement  involving  an  exchange  of  floating  rate
              interest payment  obligations for fixed rate payment  obligations.
              The swap agreement was entered into to protect against significant
              increases   in   interest   rates  on  the   variable   rate  bank
              indebtedness.  Periodic  cash  payments  either  received  or paid
              pursuant  to the  swap are  accrued  on a  settlement  basis as an
              adjustment  to  interest  expense.  The  notional  amount  of  the
              agreement  at March 28,  1999 was  $5,488,000  and that  amount is
              reduced by $74,000  monthly until May 2002 when the balance of the
              agreement expires.

                                      32


<PAGE>


         Principal  maturities of long-term  debt  obligations at March 28, 1999
         are as follows:

         Fiscal year ending
         2000                  $ 1,735
         2001                    2,027
         2002                    2,645
         2003                    2,250
         2004                    3,000
         Thereafter                750
                               -------
         Total                 $12,407
                               =======

8.   INCOME TAXES

         Deferred tax assets and liabilities reflect the tax effect of temporary
         differences  between  amounts of assets and  liabilities  for financial
         reporting  purposes and the amounts of such assets and  liabilities  as
         measured  by income tax law. A valuation  allowance  is  recognized  to
         reduce deferred tax assets to the amounts that are more likely than not
         to be realized.

         The net deferred tax asset balance consists of (in thousands):
<TABLE>
<CAPTION>
                                                          March 28, 1999                              March 29, 1998
                                              Assets         Liabilities      Total         Assets       Liabilities       Total
         -------------------------------------------------------------------------------------------------------------------------
         <S>                                <C>             <C>              <C>           <C>          <C>               <C>
         Excess book amortization for
             for pre-opening costs and
             capital leases                 $  812           $                $  812        $  846       $   -             $  846
         Tax loss carryforwards
             principally Rudy's
             Restaurant Group, Inc.           2,460                            2,460         2,891           -              2,891
         Accelerated depreciation for
              tax purposes                                       (620)          (620)                       (799)            (799)
         Income tax credits                     507                              507           940           -                940
         Other                                  333                              333            10           -                 10
         Less - valuation allowance            (107)                            (107)         (107)          -               (107)
                                             --------------------------------------------------------------------------------------

         Total asset (liability)             $4,005          $   (620)        $3,385        $4,580        $ (799)          $3,781
                                             ======================================================================================
</TABLE>
         The Company's net  operating  loss  carryforwards  was  $6,149,000  for
         ordinary  income tax purposes and  $6,462,000 for  alternative  minimum
         income tax purposes and are available to reduce future taxable  income.
         Certain of the net operating loss  carryforwards are subject to certain
         so-called  "SRLY" rules which limit their use to offset  future  income
         earned by the entity that  generated the loss.  All other net operating
         loss   carryforwards   are   available  to  offset  income  of  Rudy's.
         Furthermore,  the net operating loss  carryforwards  are subject to the
         change of control  provision  limiting  the usage of the net  operating
         loss carryforwards to approximately  $1,100,000 per year. The valuation
         allowance  has been  established  to  reserve  for net  operating  loss
         carryforwards  not  expected to be  realized.  All net  operating  loss
         carryforwards expire as follows (in thousands):

         Fiscal year ending
         2000                             $  573
         2001                                196
         2004                                297
         2005                              4,613
         2006                                470
                                          ------
                                          $6,149
                                          ======

                                       33

<PAGE>

         The income tax provision consists of (in thousands):
<TABLE>
<CAPTION>
                                                                March 28,         March 29,        March 30,
                                                                  1999              1998             1997
         --------------------------------------------------------------------------------------------------
         <S>                                                    <C>               <C>              <C>
         Current:
             Federal (net of utilization of net operating
               loss of $1,079, $352 and $0 in fiscal years
               1999, 1998 and 1997, respectively)               $2,273            $1,254           $1,637
             State                                                 811               625              505
         Deferred:
             Federal and State                                     396             1,043               90
                                                                -------------------------------------------

         Income tax provision                                   $3,480            $2,922           $2,232
                                                                ===========================================
</TABLE>
         The income tax  provision  differed  from the  amount  computed  at the
         statutory rate as follows (in thousands):
<TABLE>
<CAPTION>
                                                                March 28,         March 29,        March 30,
                                                                  1999              1998             1997
         --------------------------------------------------------------------------------------------------
         <S>                                                    <C>               <C>              <C>
         Federal income tax provision at statutory rate of 34%   $3,399             $3,013          $2,441
         Change in valuation allowance                                                 (92)
         State income taxes, net of federal benefit                 535                413             333
         Tax credits, net                                          (593)              (498)           (426)
         Other                                                      139                 86            (116)
                                                                 -------------------------------------------

         Income tax provision                                    $3,480             $2,922          $2,232
                                                                 ===========================================

         Effective income tax rate                               34.8%              33.0%           31.1%
                                                                 ===========================================
</TABLE>

9.   STOCKHOLDERS' EQUITY

         Series  A  Convertible  Preferred  Stock - The  preferred  stock  has a
         liquidation  preference  of $1,000  per  share,  carries  a  cumulative
         dividend  of 6% and  entitles  the  holder  a right to  convert  into a
         maximum of 104,887 shares of the Company's Class A Common Stock.

         Common  and  Class A  Common  Stock - The  Company's  Common  Stock  is
         convertible to Class A Common Stock on a one-for-one basis. The Class A
         Common  Stock is identical to the Common Stock except that it gives the
         holder  one-tenth  (1/10)  vote per  share,  voting  together  with the
         Company's  Common  Stock as a single  class on all  matters  except the
         election of directors.  For election of  directors,  the Class A Common
         Stockholders  vote as a class to elect 25% of the  members of the Board
         of Directors.

         Stock  Options - The Company has various  stock  option  plans,  a 1994
         Employee  Stock  Option Plan (1994  Plan),  a 1996 Class A Stock Option
         Plan (1996  Plan),  a 1997 Class A Stock  Option Plan (1997 Plan) and a
         Directors' Stock Option Plan (Directors'  Plan),  under which a maximum
         of approximately  1,785,000 shares of the Company's Common Stock may be
         issued.

         Options  granted under the 1996 and 1997 plans have a term of ten years
         from date of issuance,  and are  exercisable  ratably over a three year
         period  commencing  with the date of the grant.  Options  granted under
         these plans  require that the exercise  price be at market value on the
         date of the  grant,  or for  optionees  that own  more  than 10% of the
         combined  voting  rights of the  Company,  at 110% of market  value for
         incentive stock options.

         Options  granted  under  the 1994 Plan are  exercisable  on the date of
         grant. Under the Directors' Plan, options to purchase 10,000 shares are
         automatically granted to each of the Company's  non-employee  directors
         on the date of the Company's annual meeting. Options granted under the

                                       34

<PAGE>

         Directors Plan are exercisable  ratably over two years  commencing with
         the first anniversary of the date of the grant. Certain options granted
         under such plan are still exercisable on varying dates through 2005.

         The Company accounts for stock-based  compensation  using the intrinsic
         value method.  If the fair value method of accounting  for  stock-based
         compensation  had been  used,  the pro forma  net  income  and  diluted
         earnings per share would be as follows:
<TABLE>
<CAPTION>
                                                                March 28,         March 29,        March 30,
                                                                  1999              1998             1997
                                                                --------          --------         --------
         <S>                                                    <C>               <C>              <C>
         Net Income
             As reported                                        $6,518            $5,940           $4,947
             Pro forma                                          $5,760            $5,372           $4,870
         Diluted Earnings Per Common Share
             As reported                                        $1.02             $.93             $.77
             Pro forma                                          $ .90             $.84             $.76
</TABLE>
         The  following   weighted   average   assumptions   were  used  in  the
         Black-Scholes  option-pricing  model: a risk-free interest rate of 5.5%
         for fiscal year 1999, 5.7% for 1998 and 6.8% for 1997, respectively; an
         expected  life  of  four  years,  no  expected  dividend  yield  and  a
         volatility  factor of 58%, 34% and 45% for fiscal years 1999,  1998 and
         1997, respectively.

         Due to the inclusion of only the grants made subsequent to fiscal 1995,
         the effects may not be representative of the pro forma impact in future
         years.

         The following table  summarizes  information  about  fixed-price  stock
         options outstanding at March 28, 1999:
<TABLE>
<CAPTION>
                                 Options Outstanding                           Options Exercisable
                        ----------------------------------------          ----------------------------
                                      Weighted-
                                       Average          Weighted                             Weighted
Ranges of                             Remaining         Average                               Average
exercise                             Contractual       Exercise                              Exercise
Prices                  Number          Life             Price            Number               Price
------------------------------------------------------------------------------------------------------
<S>                     <C>          <C>               <C>                <C>                <C>
 $ 1 3/8 - $3 1/4        31,500          4.8            $ 2.75             31,500             $ 2.75
   6 3/4 -  8 3/8       404,803          8.7              7.43            198,503               7.51
   9 3/16 - 10 1/8      124,757          7.3              9.42            122,257               9.42
  10 1/4  - 12 1/4      316,500          8.5             12.14            215,167              12.11
 -----------------      -------                                           -------
 $ 1 3/8 - $12 1/4      877,560                                           567,427

         Transactions under the above plans for the years ended are as follows:
</TABLE>
<TABLE>
<CAPTION>
                                                              March 28,           March 29,        March 30,
                                                                1999                1998             1997
         --------------------------------------------------------------------------------------------------
         <S>                                                  <C>                 <C>              <C>
         Balance, beginning of year                           669,427             222,407          129,900
         Granted                                              209,500             467,750          133,507
         Canceled                                                                  (3,750)
         Expired                                                                   (2,067)
         Exercised                                             (1,367)            (14,913)         (41,000)
                                                              ---------------------------------------------

         Balance, end of year                                 877,560             669,427          222,407
                                                              =============================================
         Weighted average fair value of options
             granted during year                              $  5.26            $   4.47         $   3.57

</TABLE>
         On March 28, 1999, options for 567,427 of the shares are exercisable at
         prices ranging from $1 3/8 to $12 1/4.


                                     35

<PAGE>

         There were  approximately  966,000  shares of common stock  reserved at
         March 28, 1999, for issuance upon exercise of stock options.

         Stock Rights - The Company has a Shareholder  Rights Plan under which a
         Preferred   Share   Purchase  Right  (Right)  is  represented  by  each
         outstanding share of the Company's Common and Class A Common Stock. The
         Rights operate to create  substantial  dilution to a potential acquiror
         who seeks to make an  acquisition,  the  terms of which  the  Company's
         Board of Directors  believes is  inadequate or structured in a coercive
         manner.

         The Rights become  exercisable  on the tenth day (or such later date as
         the Board of Directors may determine) after public  announcement that a
         person or a group (subject to certain  exceptions)  has acquired 20% or
         more of the  outstanding  Common Stock or an  announcement  of a tender
         offer that would result in beneficial  ownership by a person or a group
         of 20% or more of the Common Stock.

10.  INCENTIVE AND DEFERRED COMPENSATION PLANS

         The Company has an incentive  compensation  plan (Plan)  whereby  bonus
         awards are made if the Company attains a certain targeted return on its
         opening  equity.  The purpose of the Plan is to improve  the  long-term
         sustainable results of operations of the Company by more fully aligning
         the interests of management and key employees with the  shareholders of
         the Company.  One-third  of the amounts  awarded are  immediately  made
         available  to  the  employee  and  the  remaining   two-thirds  becomes
         available  ratably over the  succeeding  two years.  Amounts  allocated
         under  the Plan may be taken  in cash or  deferred  in a  non-qualified
         deferred  compensation  plan. The target rate,  which was 16% for 1999,
         17.5% for 1998 and 20% for 1997,  is  approved  annually  based  upon a
         review of the return of other publicly traded restaurant  businesses by
         the Compensation Committee of the Board of Directors. The amount of the
         awards is capped at 50% of the  eligible  salary of the  employee.  The
         Company accrued $575,000,  $475,000 and $450,000 for fiscal years 1999,
         1998 and 1997, respectively.

         The  Company  has an  executive  retirement  plan  whereby  certain key
         employees  may  elect to defer  up to 20% of their  salary  and 100% of
         their bonus until  retirement or age 55,  whichever is later, or due to
         disability  or death.  Employees  may select  from  various  investment
         options for their available account balances.  Investment  earnings are
         credited to their accounts.

11.  QUARTERLY FINANCIAL DATA (UNAUDITED)

         Quarter ended (in thousands except for per share information)
<TABLE>
CAPTION>
                                                                   March 28, 1999
                                               4th              3rd               2nd              1st
         -------------------------------------------------------------------------------------------------
         <S>                                   <C>              <C>               <C>              <C>
         REVENUES                              $30,085          $27,899           $26,347          $34,818
         GROSS PROFIT                           22,268           20,512            19,218           25,389
         NET INCOME                              2,452            1,753             1,145            1,168
         BASIC EARNINGS
             PER SHARE:                        $   .39          $   .29           $   .19          $   .19
         DILUTED EARNINGS
             PER SHARE:                        $   .38          $   .28           $   .18          $   .18

</TABLE>


                                      36

<PAGE>

         Quarter ended (in thousands except for per share amounts)
<TABLE>
<CAPTION>
                                                                   March 29, 1998
                                               4th              3rd               2nd              1st
         --------------------------------------------------------------------------------------------------
         <S>                                   <C>              <C>               <C>             <C>
         REVENUES                              $26,880          $24,096           $21,192         $ 27,589
         GROSS PROFIT                           19,836           17,743            15,725           20,559
         NET INCOME                              1,598            1,562             1,140            1,640
         BASIC EARNINGS
             PER SHARE:                        $   .26          $   .25           $   .18         $    .26
         DILUTED EARNINGS
             PER SHARE :                       $   .25          $   .24           $   .16         $    .26

</TABLE>


                                       37


<PAGE>






                          INDEPENDENT AUDITORS' REPORT






To the Board of Directors and Stockholders of Benihana Inc.:

We have audited the  accompanying  consolidated  balance sheets of Benihana Inc.
and subsidiaries  (the Company) as of March 28, 1999 and March 29, 1998, and the
related consolidated statements of earnings, stockholders' equity and cash flows
for  each  of the  three  years  in the  period  ended  March  28,  1999.  These
consolidated  financial  statements  are  the  responsibility  of the  Company's
management.  Our  responsibility is to express an opinion on these  consolidated
financial statements based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion,  such consolidated  financial  statements present fairly, in all
material  respects,  the financial position of Benihana Inc. and subsidiaries as
of March 28, 1999 and March 29, 1998,  and the results of their  operations  and
their cash flows for each of the three years in the period  ended March 28, 1999
in conformity with generally accepted accounting principles.








Deloitte & Touche LLP
Certified Public Accountants
Miami, Florida
May 7, 1999

                                   38


<PAGE>



COMMON STOCK INFORMATION

The Company's  Common Stock and Class A Stock are traded on the Nasdaq  National
Market  System.  There were 294 holders of record of the Company's  Common Stock
and 383 holders of record of the Class A Common Stock at March 28, 1999.

The table  below sets forth  high and low bid  prices for the  Company's  Common
Stock and Class A Common Stock, which do not include commissions and mark-ups or
mark-downs  for the  periods  indicated.  Such bid prices  reflect  inter-dealer
prices  without  retail   mark-ups,   mark-downs  or  commissions  and  may  not
necessarily represent actual transactions.

<TABLE>
<CAPTION>
                                                             Fiscal Year Ended
                                                             -----------------
                                               March 28, 1999                 March 29, 1998
                                            -----------------------        ----------------------
                  COMMON STOCK              High            Low            High            Low
                  <S>                       <C>             <C>            <C>             <C>
                  1st Quarter               12 3/8          10 1/8          9 3/4           6 3/4
                  2nd Quarter               11 1/4           6 3/16        13               8 7/8
                  3rd Quarter               11               6 7/8         15              11 3/8
                  4th Quarter               11 3/4           9 3/4         12 3/4          11

</TABLE>
<TABLE>
<CAPTION>
                                                             Fiscal Year Ended
                                               March 28, 1999                 March 29, 1998
                                            -----------------------        ----------------------
                  CLASS A
                  COMMON STOCK              High            Low            High           Low
                  <S>                       <C>             <C>            <C>            <C>
                  1st Quarter               12 1/6          9 3/4           8 5/8          6 1/2
                  2nd Quarter               10 7/8          5 5/8          12 3/8          8 1/8
                  3rd Quarter                9 1/2          6 1/4          13             11
                  4th Quarter               12              9 3/8          12 1/8         10 1/2
</TABLE>

The Class A Common  Stock is  identical to the Common Stock except that it gives
the holder one-tenth  (1/10) vote per share,  voting together with the Company's
Common Stock as a single class on all matters  except the election of directors.
For election of directors,  the Class A Common  stockholders  vote as a class to
elect 25% of the members of the Board of Directors.

The Company has not declared or paid a cash dividend since its  organization and
has no present intention of paying any such dividend in the foreseeable  future.
The Company intends to retain all available cash for the operation and expansion
of its business. In addition, the Company's present loan agreement restricts the
payment of dividends.

                                   39


<PAGE>

Exhibit 10.11



                                CREDIT AGREEMENT


                          Dated as of December 1, 1997


                                      among


                                  BENIHANA INC.
                                  as Borrower,


                                       AND

                      CERTAIN SUBSIDIARIES OF THE BORROWER
                         FROM TIME TO TIME PARTY HERETO,
                                 as Guarantors,


                               THE SEVERAL LENDERS
                         FROM TIME TO TIME PARTY HERETO


                                       AND


                           FIRST UNION NATIONAL BANK,
                                    as Agent


                                    40
<PAGE>





                                CREDIT AGREEMENT

         THIS  CREDIT  AGREEMENT,  dated as of  December  1,  1997 (as  amended,
modified,  restated or supplemented from time to time, the "Credit  Agreement"),
is by and among  BENIHANA INC., a Delaware  corporation  (the  "Borrower"),  the
Guarantors (as defined herein),  the Lenders (as defined herein) and FIRST UNION
NATIONAL BANK, as Agent for the Lenders (in such capacity, the "Agent").

                               W I T N E S S E T H

         WHEREAS,  the  Borrower  has  requested  that  the  Lenders  provide  a
$27,000,000 credit facility for the purposes hereinafter set forth; and

         WHEREAS,  the Lenders have agreed to make the requested credit facility
available to the Borrower on the terms and conditions hereinafter set forth;

         NOW,  THEREFORE,  IN  CONSIDERATION  of the premises and other good and
valuable  consideration,   the  receipt  and  sufficiency  of  which  is  hereby
acknowledged, the parties hereto agree as follows:

                                    SECTION 1

                                   DEFINITIONS

         1.1      Definitions.

         As used in this Credit  Agreement,  the following  terms shall have the
meanings specified below unless the context otherwise requires:

                  "Acquired Company" means Rudy's Restaurant Group, Inc., a
         Nevada corporation.

                  "Acquisition"  means  the  acquisition  by any  Person  of the
         Capital  Stock or all or  substantially  all of the Property of another
         Person,  whether or not involving a merger or  consolidation  with such
         Person.

                  "Additional  Credit  Party"  means each Person that  becomes a
         Guarantor after the Closing Date by execution of a Joinder Agreement.

                  "Adjusted Base Rate" means the Base Rate plus the Applicable
         Margin.

                  "Adjusted Eurodollar Rate" means the Eurodollar Rate plus the
         Applicable Margin.

                  "Affiliate"  means,  with  respect  to any  Person,  any other
         Person (a) directly or indirectly controlling or controlled by or under
         direct or indirect  common  control with such Person or (b) directly or
         indirectly  owning or holding  five  percent (5%) or more of the equity
         interest in such  Person.  For purposes of this  definition,  "control"
         when used with  respect  to any  Person  means the power to direct  the
         management and policies of such Person, directly or indirectly, whether
         through the ownership of voting  securities,  by contract or otherwise;
         and the terms "controlling" and "controlled" have meanings  correlative
         to the foregoing.

                  "Agent"  shall have the  meaning  assigned to such term in the
         heading hereof, together with any successors or assigns.

                  "Agent's  Fee Letter"  means that  certain  letter  agreement,
         dated as of July 14,  1997,  between  the  Agent and the  Borrower,  as
         amended, modified, restated or supplemented from time to time.

                                       41

<PAGE>

                           "Agent's  Fees"  shall have the  meaning  assigned to
          such term in Section 3.5(c).

                           "Applicable  Lending Office" means,  for each Lender,
          the office of such Lender (or of an  Affiliate of such Lender)
          as such Lender may from time to time  specify to the Agent and
          the  Borrower  by  written  notice as the  office by which its
          Eurodollar Loans are made and maintained.

                           "Applicable    Margin"   means,   for   purposes   of
          calculating  the applicable  interest rate for any day for any
          Revolving Loan or any Term Loan,  the  applicable  rate of the
          Commitment  Fee for any day for purposes of Section 3.5(a) and
          the  applicable  rate of the Standby  Letter of Credit Fee for
          any day for  purposes of Section  3.5(b)(i),  the  appropriate
          Applicable  Margin  corresponding  to the  Leverage  Ratio  in
          effect as of the most recent Calculation Date:
<TABLE>
<CAPTION>

                                                                                 Applicable
                                         Applicable        Applicable            Margin For        Applicable
                                         Margin For        Margin For             Standby          Margin For
           Pricing       Leverage        Eurodollar         Base Rate            Letter of         Commitment
            Level          Ratio            Loans            Loans               Credit Fee           Fees
           --------------------------------------------------------------------------------------------------
           <S>          <C>              <C>               <C>                   <C>               <C>
               I        Greater than       2.25%             1.00%                 2.25%              .50%
                        or equal to
                        2.25 to 1.0
           --------------------------------------------------------------------------------------------------
              II        Less than          2.00%              .75%                 2.00%              .375%
                        2.25 to 1.0
                        but greater
                        or equal to
                        1.75 to 1.0
            -------------------------------------------------------------------------------------------------
             III        Less than          1.50%              .25%                 1.50%              .25%
                        1.75 to 1.0
                        but greater
                        than or equal
                        to 1.25 to 1.0
            -------------------------------------------------------------------------------------------------
              IV        Less than 1.25     1.00%             0.00%                 1.00%              .25%
                        to 1.0
            -------------------------------------------------------------------------------------------------
</TABLE>
              The Applicable  Margins shall be determined and adjusted quarterly
              on the date (each a  "Calculation  Date") five Business Days after
              the  date by  which  the  Borrower  is  required  to  provide  the
              officer's certificate in accordance with the provisions of Section
              7.1(c)  for  the  most  recently   ended  fiscal  quarter  of  the
              Consolidated  Parties  the  first of  which to occur on March  29,
              1998; provided,  however,  that (i) the initial Applicable Margins
              shall be based on  Pricing  Level II (as  shown  above)  and shall
              remain at Pricing  Level II until March 29, 1998 and,  thereafter,
              the Pricing Level shall be determined by the Leverage  Ratio as of
              the last day of the most  recently  ended  fiscal  quarter  of the
              Consolidated  Parties  preceding the applicable  Calculation Date;
              provided  further  that  if the  Borrower  fails  to  provide  the
              officer's  certificate required by Section 7.1(d) on or before the
              most recent  Calculation  Date,  the  Applicable  Margin from such
              Calculation Date shall be based on Pricing Level I until such time
              as an appropriate  officer's certificate is provided whereupon the
              Pricing  Level shall be  determined  by the then current  Leverage
              Ratio.   Each  Applicable  Margin  shall  be  effective  from  one
              Calculation Date until the next  Calculation  Date. Any adjustment
              in the  Applicable  Margins  shall be  applicable  to all existing
              Loans as well as any new Loans made or issued.


                                       42
<PAGE>


                  "Application  Period",  in respect  of any Asset  Disposition,
         shall have the meaning assigned to such term in Section 8.5.

                  "Asset Disposition" means the disposition of any or all of the
         assets (including  without limitation the Capital Stock of a Subsidiary
         but excluding the sale of inventory in the ordinary course of business)
         of  any  Consolidated  Party  whether  by  sale,  lease,   transfer  or
         otherwise.  The term "Asset  Disposition"  shall not include any Equity
         Issuance.

                  "Bankruptcy Code" means the Bankruptcy Code in Title 11 of the
         United  States Code, as amended,  modified,  succeeded or replaced from
         time to time.

                  "Bankruptcy  Event"  means,  with  respect to any Person,  the
         occurrence of any of the following  with respect to such Person:  (a) a
         court or governmental  agency having jurisdiction in the premises shall
         enter a decree or order  for  relief in  respect  of such  Person in an
         involuntary case under any applicable  bankruptcy,  insolvency or other
         similar  law now or  hereafter  in effect,  or  appointing  a receiver,
         liquidator,  assignee,  custodian,  trustee,  sequestrator  (or similar
         official) of such Person or for any substantial part of its Property or
         ordering the winding up or  liquidation  of its  affairs;  or (b) there
         shall be commenced  against such Person an  involuntary  case under any
         applicable bankruptcy, insolvency or other similar law now or hereafter
         in effect, or any case,  proceeding or other action for the appointment
         of a receiver,  liquidator,  assignee, custodian, trustee, sequestrator
         (or similar official) of such Person or for any substantial part of its
         Property or for the winding up or liquidation of its affairs,  and such
         involuntary case or other case, proceeding or other action shall remain
         undismissed,  undischarged  or  unbonded  for a period  of  sixty  (60)
         consecutive  days; or (c) such Person shall  commence a voluntary  case
         under any applicable bankruptcy, insolvency or other similar law now or
         hereafter in effect,  or consent to the entry of an order for relief in
         an involuntary  case under any such law, or consent to the  appointment
         or taking possession by a receiver,  liquidator,  assignee,  custodian,
         trustee,  sequestrator (or similar  official) of such Person or for any
         substantial part of its Property or make any general assignment for the
         benefit of  creditors;  or (d) such Person shall be unable to, or shall
         admit in writing  its  inability  to, pay its debts  generally  as they
         become due.

                  "Base Rate"  means,  for any day,  the rate per annum equal to
         the higher of (a) the Federal  Funds Rate for such day plus one-half of
         one  percent  (.5%) and (b) the Prime Rate for such day.  Any change in
         the Base Rate due to a change in the Prime  Rate or the  Federal  Funds
         Rate shall be  effective  on the  effective  date of such change in the
         Prime Rate or Federal Funds Rate.

                  "Base Rate Loan"  means any Loan  bearing  interest  at a rate
         determined by reference to the Base Rate.

                                       43
<PAGE>


                  "Borrower" means the Person  identified as such in the heading
         hereof, together with any permitted successors and assigns.

                  "Business  Day" means a day other than a  Saturday,  Sunday or
         other day on which commercial banks in Charlotte, North Carolina or New
         York, New York are authorized or required by law to close, except that,
         when used in connection with a Eurodollar  Loan, such day shall also be
         a day on which  dealings  between  banks are carried on in U.S.  dollar
         deposits in London, England.

                  "Calculation Date" has the meaning set forth in the definition
         of "Applicable Margin" set forth in this Section 1.1.

                  "Capital Lease" means, as applied to any Person,  any lease of
         any Property (whether real, personal or mixed) by that Person as lessee
         which,  in  accordance  with GAAP,  is or should be accounted  for as a
         capital lease on the balance sheet of that Person.

                  "Capital  Stock"  means  (a) in  the  case  of a  corporation,
         capital stock,  (b) in the case of an  association or business  entity,
         any  and  all  shares,  interests,  participations,   rights  or  other
         equivalents (however designated) of capital stock, (c) in the case of a
         partnership, partnership interests (whether general or limited), (d) in
         the case of a limited liability company,  membership  interests and (e)
         any other interest or participation  that confers on a Person the right
         to receive a share of the  profits and losses of, or  distributions  of
         assets of, the issuing Person.

                                       44

<PAGE>


                  "Cash Equivalents" means (a) securities issued or directly and
         fully  guaranteed  or insured  by the  United  States of America or any
         agency or  instrumentality  thereof  (provided  that the full faith and
         credit of the United  States of America is pledged in support  thereof)
         having  maturities  of not more  than  twelve  months  from the date of
         acquisition, (b) U.S. dollar denominated time deposits and certificates
         of deposit of (i) any  Lender,  (ii) any  domestic  commercial  bank of
         recognized   standing   having   capital   and  surplus  in  excess  of
         $500,000,000 or (iii) any bank whose short-term commercial paper rating
         from S&P is at least A-1 or the  equivalent  thereof or from Moody's is
         at  least  P-1 or the  equivalent  thereof  (any  such  bank  being  an
         "Approved  Bank"),  in each case with  maturities  of not more than 270
         days from the date of acquisition, (c) commercial paper and variable or
         fixed rate notes issued by any Approved Bank (or by the parent  company
         thereof) or any variable  rate notes issued by, or  guaranteed  by, any
         domestic corporation rated A-1 (or the equivalent thereof) or better by
         S&P or P-1 (or  the  equivalent  thereof)  or  better  by  Moody's  and
         maturing within six months of the date of  acquisition,  (d) repurchase
         agreements with a bank or trust company  (including any of the Lenders)
         or recognized securities dealer having capital and surplus in excess of
         $500,000,000  for direct  obligations  issued by or fully guaranteed by
         the United  States of America  in which any Credit  Party  shall have a
         perfected first priority  security interest (subject to no other Liens)
         and having, on the date of purchase thereof,  a fair market value of at
         least  100%  of  the  amount  of the  repurchase  obligations  and  (e)
         Investments,  classified in accordance with GAAP as current assets,  in
         money  market  investment  programs  registered  under  the  Investment
         Company Act of 1940, as amended,  which are  administered  by reputable
         financial  institutions having capital of at least $500,000,000 and the
         portfolios  of  which  are  limited  to  Investments  of the  character
         described in the foregoing subdivisions (a) through (d).

                  "Change  of  Control"  means  the  occurrence  of  any  of the
         following  events:  (a) the  failure  of Rocky H. Aoki or  Benihana  of
         Tokyo, Inc. to maintain beneficial  ownership,  directly or indirectly,
         of  Voting  Stock of the  Borrower  representing  at  least  35% of the
         combined  voting  power of all Voting  Stock of the  Borrower,  (b) any
         Person or two or more  Persons  acting in concert  shall have  acquired
         beneficial ownership, directly or indirectly, or shall have acquired by
         contract  or  otherwise,  or shall  have  entered  into a  contract  or
         arrangement  that,  upon  consummation,  will  result  in its or  their
         acquisition  of control  over,  Voting  Stock of the Borrower (or other
         securities convertible into such Voting Stock) representing 20% or more
         of the combined voting power of all Voting Stock of the Borrower at any
         time when Benihana of Tokyo, Inc., Rocky H. Aoki and other officers and
         directors  of  the   Borrower   possess,   collectively,   directly  or
         indirectly,  less than  sufficient  voting power to elect a majority of
         the directors of the Borrower,  or (c) Continuing Directors shall cease
         for any reason to  constitute a majority of the members of the board of
         directors of the Borrower then in office.  As used herein,  "beneficial
         ownership"  shall  have  the  meaning  provided  in Rule  13d-3  of the
         Securities  and Exchange  Commission  promulgated  under the Securities
         Exchange Act of 1934."

                  "Closing Date" means the date hereof.

                  "Code"  means the Internal  Revenue Code of 1986,  as amended,
         and any successor  statute  thereto,  as  interpreted  by the rules and
         regulations issued  thereunder,  in each case as in effect from time to
         time.  References  to sections of the Code shall be  construed  also to
         refer to any successor sections.

                  "Collateral"  means a collective  reference to the  collateral
         which  is  identified  in,  and at any time  will be  covered  by,  the
         Collateral Documents.

                  "Collateral  Documents"  means a  collective  reference to the
         Security  Agreement,  the Pledge  Agreement  and such  other  documents
         executed and delivered in connection with the attachment and perfection
         of  the  Agent's  security  interests  and  liens  arising  thereunder,
         including without limitation,  UCC financing  statements and patent and
         trademark filings.

                                        45
<PAGE>


                  "Commitment"  means  (a)  with  respect  to each  Lender,  the
         Revolving  Commitment  of such Lender and the Term Loan  Commitment  of
         such  Lender  and (b)  with  respect  to the  Issuing  Lender,  the LOC
         Commitment.

                  "Commitment  Fee" shall have the meaning assigned to such term
         in Section 3.5(a).

                  "Commitment  Fee  Calculation  Period"  shall have the meaning
         assigned to such term in Section 3.5(a).

                  "Consolidated Accrued Interest Expense" means, for any period,
         accrued interest  expense  (including the amortization of debt discount
         and premium and the interest  component  under  Capital  Leases) of the
         Consolidated  Parties  on a  consolidated  basis  for such  period,  as
         determined in accordance with GAAP. The applicable  period shall be for
         the four consecutive  quarters ending as of the date of  determination,
         except that for the first three complete fiscal quarters to occur after
         the  Closing  Date,  Consolidated  Accrued  Interest  Expense  shall be
         determined  by  annualizing  the  components  thereof for the  complete
         fiscal   quarters   occurring   after  the  Closing   Date  (such  that
         Consolidated  Accrued  Interest  Expense for the first complete  fiscal
         quarter to occur after the  Closing  Date would be  multiplied  by four
         (4), the first two complete  fiscal quarters would be multiplied by two
         (2)  and  the  first  three  (3)  complete  fiscal  quarters  would  be
         multiplied by one and one-third (1-1/3)).

                  "Consolidated Capital Expenditures" means, for any period, all
         capital  expenditures  of the  Consolidated  Parties on a  consolidated
         basis for such period, as determined in accordance with GAAP.

                  "Consolidated Cash Taxes" means, for any period, the aggregate
         of all taxes of the  Consolidated  Parties on a consolidated  basis for
         such period,  as determined in accordance  with GAAP, to the extent the
         same are paid in cash during such period.

                                       46

<PAGE>


                  "Consolidated  EBITDA" means,  for any period,  the sum of (a)
         Consolidated  Net Income for such period,  plus (b) an amount which, in
         the determination of Consolidated Net Income for such period,  has been
         deducted for (i)  Consolidated  Accrued  Interest  Expense,  (ii) total
         accrued  federal,  state,  local and  foreign  income,  value added and
         similar taxes and (iii) depreciation and amortization  expense,  all as
         determined in accordance with GAAP. The applicable  period shall be for
         the four consecutive  quarters ending as of the date of  determination,
         except that for the first three complete fiscal quarters to occur after
         the  Closing   Date,   Consolidated   EBITDA  shall  be  determined  by
         annualizing  the components  thereof for the complete  fiscal  quarters
         occurring after the Closing Date (such that Consolidated EBITDA for the
         first complete  fiscal quarter to occur after the Closing Date would be
         multiplied by four (4), the first two complete fiscal quarters would be
         multiplied  by two (2) and the first  three  complete  fiscal  quarters
         would be multiplied by one and one-third (1-1/3)).

                  "Consolidated  EBITDA  Threshold"  means, with respect to each
         fiscal year end set forth below, the amount corresponding thereto:

                           Fiscal Year                         Amount
                           -----------                         ------
                           1999                                $15,820,000
                           2000                                $16,910,000
                           2001                                $17,815,000
                           2002                                $19,465,000
                           2003                                $21,216,000

                  "Consolidated  Excess  EBITDA"  means,  as of the  end of each
         fiscal year of the  Consolidated  Parties,  the dollar  amount by which
         Consolidated EBITDA exceeds the Consolidated EBITDA Threshold.

                  "Consolidated  Net Income" means,  for any period,  net income
         (excluding  extraordinary  items)  after  taxes for such  period of the
         Consolidated   Parties  on  a  consolidated  basis,  as  determined  in
         accordance with GAAP.

                  "Consolidated  Parties"  means a  collective  reference to the
         Borrower and its Subsidiaries,  and "Consolidated  Party" means any one
         of them.

                  "Consolidated Scheduled Funded Debt Payments" means, as of the
         end of  each  fiscal  quarter  of the  Consolidated  Parties,  for  the
         Consolidated  Parties on a consolidated basis, the sum of all scheduled
         payments of principal on Funded  Indebtedness for the applicable period
         ending on such date (including the principal  component of payments due
         on Capital Leases during the applicable period ending on such date); it
         being  understood that Scheduled Funded Debt Payments shall not include
         voluntary prepayments or the mandatory prepayments required pursuant to
         Section 3.3.

                  "Continue", "Continuation", and "Continued" shall refer to the
         continuation  pursuant to Section 3.2 hereof of a Eurodollar  Loan from
         one Interest Period to the next Interest Period.

                                      47

<PAGE>


                  "Continuing  Directors"  means,  during any period of up to 24
         consecutive months,  commencing after the Closing Date, individuals who
         at the beginning of such 24 month period were directors of the Borrower
         (together with any new director whose election by the Borrower's  board
         of  directors  or  whose  nomination  for  election  by the  Borrower's
         shareholders  was  approved  by a vote of at  least  two-thirds  of the
         directors  then  still in  office  who  either  were  directors  at the
         beginning of such period or whose  election or nomination  for election
         was previously so approved).

                  "Convert",  "Conversion",  and  "Converted"  shall  refer to a
         conversion  pursuant  to Section  3.2 or  Sections  3.7  through  3.12,
         inclusive, of a Base Rate Loan into a Eurodollar Loan.

                  "Credit Documents" means a collective reference to this Credit
         Agreement,  the Notes, the LOC Documents,  each Joinder Agreement,  the
         Agent's Fee Letter,  the  Collateral  Documents  and all other  related
         agreements and documents issued or delivered hereunder or thereunder or
         pursuant  hereto or thereto  (in each case as the same may be  amended,
         modified,  restated,  supplemented,  extended, renewed or replaced from
         time to time), and "Credit Document" means any one of them.

                  "Credit Parties" means a collective  reference to the Borrower
         and the Guarantors, and "Credit Party" means any one of them.

                  "Credit Party Obligations" means, without duplication, (a) all
         of the obligations of the Credit Parties to the Lenders  (including the
         Issuing  Lender)  and the Agent,  whenever  arising,  under this Credit
         Agreement,  the Notes,  the  Collateral  Documents  or any of the other
         Credit Documents (including,  but not limited to, any interest accruing
         after the  occurrence of a Bankruptcy  Event with respect to any Credit
         Party,  regardless  of whether such  interest is an allowed claim under
         the Bankruptcy Code) and (b) all liabilities and obligations,  whenever
         arising,  owing from the Borrower to any Lender,  or any Affiliate of a
         Lender, arising under any Hedging Agreement.

                  "Default" means any event,  act or condition which with notice
         or lapse of time, or both, would constitute an Event of Default.

                  "Defaulting  Lender"  means,  at any time, any Lender that (a)
         has failed to make a Loan or purchase a Participation Interest required
         pursuant to the term of this Credit  Agreement  within one Business Day
         of when due,  (b) other than as set forth in (a)  above,  has failed to
         pay to the Agent or any Lender an amount owed by such  Lender  pursuant
         to the terms of this Credit  Agreement  within one Business Day of when
         due,  or (c) has been  deemed  insolvent  or has  become  subject  to a
         bankruptcy or  insolvency  proceeding or with respect to which (or with
         respect  to any of assets  of which) a  receiver,  trustee  or  similar
         official has been appointed.

                  "Dollars" and "$" means dollars in lawful currency of the
         United States of America.

                  "Domestic  Subsidiary"  means, with respect to any Person, any
         Subsidiary of such Person which is  incorporated or organized under the
         laws of any State of the United States or the District of Columbia.

                                       48

<PAGE>


                  "Eligible  Assignee" means (a) a Lender; (b) an Affiliate of a
         Lender;  and (c) any other Person  approved by the Agent and, unless an
         Event  of  Default  has  occurred  and is  continuing  at the  time any
         assignment  is effected in accordance  with Section 11.3,  the Borrower
         (such  approval  not to be  unreasonably  withheld  or  delayed  by the
         Borrower  and such  approval to be deemed  given by the  Borrower if no
         objection  is received by the  assigning  Lender and the Agent from the
         Borrower  within  two  Business  Days  after  notice  of such  proposed
         assignment has been provided by the assigning  Lender to the Borrower);
         provided,  however,  that  neither the Borrower nor an Affiliate of the
         Borrower shall qualify as an Eligible Assignee.

                  "Environmental  Laws" means any and all lawful and  applicable
         Federal,   state,  local  and  foreign  statutes,   laws,  regulations,
         ordinances,  rules, judgments,  orders, decrees, permits,  concessions,
         grants,   franchises,   licenses,   agreements  or  other  governmental
         restrictions  relating to the environment or to emissions,  discharges,
         releases or threatened releases of pollutants, contaminants, chemicals,
         or  industrial,  toxic  or  hazardous  substances  or  wastes  into the
         environment including, without limitation,  ambient air, surface water,
         ground  water,  or land,  or  otherwise  relating  to the  manufacture,
         processing, distribution, use, treatment, storage, disposal, transport,
         or handling of  pollutants,  contaminants,  chemicals,  or  industrial,
         toxic or hazardous substances or wastes.

                  "Equity Issuance" means any issuance by any Consolidated Party
         to any  Person  which is not a Credit  Party of shares  of its  Capital
         Stock,  including,  without  limitation,  (a) any shares of its Capital
         Stock  pursuant  to the  exercise  of options or  warrants  and (b) any
         shares of its  Capital  Stock  pursuant to the  conversion  of any debt
         securities to equity.  The term "Equity Issuance" shall not include (i)
         any Asset  Disposition or (ii) the issuance of shares of the Borrower's
         common  stock or Class A  common  stock  pursuant  to  options  granted
         pursuant to any employee  stock option plan or  non-employee  directors
         stock option plan of the Borrower, or upon the exercise of that certain
         warrant to purchase  200,000  shares of the  Borrower's  Class A common
         stock issued by the Borrower in connection  with the Acquisition of the
         Acquired Company.

                  "ERISA" means the Employee  Retirement  Income Security Act of
         1974, as amended,  and any successor statute thereto, as interpreted by
         the rules and regulations thereunder,  all as the same may be in effect
         from time to time.  References  to sections of ERISA shall be construed
         also to refer to any successor sections.

                  "ERISA  Affiliate"  means an  entity  which  is  under  common
         control with any Credit Party within the meaning of Section 4001(a)(14)
         of ERISA,  or is a member of a group which  includes  the  Borrower and
         which is treated as a single  employer under Sections  414(b) or (c) of
         the Code.

                                      49

<PAGE>


                  "ERISA  Event"  means  (a)  with  respect  to  any  Plan,  the
         occurrence  of a  Reportable  Event  or the  substantial  cessation  of
         operations  (within the meaning of Section  4062(e) of ERISA);  (b) the
         withdrawal  by any  Consolidated  Party or any ERISA  Affiliate  from a
         Multiple Employer Plan during a plan year in which it was a substantial
         employer (as such term is defined in Section  4001(a)(2) of ERISA),  or
         the termination of a Multiple  Employer Plan; (c) the distribution of a
         notice of intent  to  terminate  or the  actual  termination  of a Plan
         pursuant to Section  4041(a)(2) or 4041A of ERISA;  (d) the institution
         of proceedings to terminate or the actual  termination of a Plan by the
         PBGC under  Section  4042 of ERISA;  (e) any event or  condition  which
         might   constitute   grounds  under  Section  4042  of  ERISA  for  the
         termination  of, or the  appointment  of a trustee to  administer,  any
         Plan; (f) the complete or partial  withdrawal of any Consolidated Party
         or any ERISA  Affiliate from a  Multiemployer  Plan; (g) the conditions
         for  imposition  of a lien  under  Section  302(f) of ERISA  exist with
         respect to any Plan;  or (h) the  adoption of an  amendment to any Plan
         requiring  the  provision of security to such Plan  pursuant to Section
         307 of ERISA.

                  "Eurodollar Loan" means any Loan that bears interest at a rate
         based upon the Eurodollar Rate.

                  "Eurodollar  Rate"  means,  for any  Eurodollar  Loan  for any
         Interest  Period  therefor,  the rate per annum  (rounded  upwards,  if
         necessary,  to the nearest  1/100 of 1%)  determined by the Agent to be
         equal to the  quotient  obtained by dividing  (a) the London  Interbank
         Offered Rate for such Eurodollar Loan for such Interest Period by (b) 1
         minus the Eurodollar  Reserve  Requirement for such Eurodollar Loan for
         such Interest Period.

                  "Eurodollar  Reserve  Requirement"  means,  at any  time,  the
         maximum rate at which  reserves  (including,  without  limitation,  any
         marginal, special, supplemental, or emergency reserves) are required to
         be maintained under  regulations  issued from time to time by the Board
         of Governors of the Federal Reserve System (or any successor) by member
         banks of the Federal Reserve System against "Eurocurrency  liabilities"
         (as such term is used in Regulation D). Without  limiting the effect of
         the foregoing,  the Eurodollar  Reserve  Requirement  shall reflect any
         other  reserves  required to be  maintained  by such member  banks with
         respect to (a) any category of liabilities  which includes  deposits by
         reference to which the Adjusted Eurodollar Rate is to be determined, or
         (b) any category of  extensions of credit or other assets which include
         Eurodollar  Loans.  The  Adjusted  Eurodollar  Rate  shall be  adjusted
         automatically  on and as of the  effective  date of any  change  in the
         Eurodollar Reserve Requirement.

                  "Event of Default" means such term as defined in Section 9.1.

                                      50

<PAGE>


                  "Excluded Asset  Disposition"  means any Asset  Disposition by
         any  Consolidated  Party to any Credit Party if (a) the Credit  Parties
         shall cause to be executed and delivered  such  documents,  instruments
         and  certificates  as the Agent may  request  so as to cause the Credit
         Parties to be in compliance with the terms of Section 7.13 after giving
         effect to such Asset Disposition and (b) after giving effect such Asset
         Disposition, no Default or Event of Default exists.

                  "Existing  Credit  Agreement"  means the  Second  Amended  and
         Restated Credit Agreement dated as of May 1, 1995 by and among Benihana
         National Corp.,  the Co-Makers,  Benihana Inc., the  Guarantors,  First
         Union National Bank of Florida, as a Lender and as the Agent.

                  "Fees" means all fees payable pursuant to Section 3.5.

                  "Federal  Funds Rate"  means,  for any day, the rate per annum
         (rounded  upwards,  if necessary,  to the nearest 1/100 of 1%) equal to
         the  weighted   average  of  the  rates  on  overnight   Federal  funds
         transactions  with members of the Federal  Reserve  System  arranged by
         Federal funds brokers on such day, as published by the Federal  Reserve
         Bank of New York on the Business Day next succeeding such day; provided
         that (a) if such day is not a Business  Day, the Federal Funds Rate for
         such day shall be such rate on such  transactions on the next preceding
         Business Day as so published on the next  succeeding  Business Day, and
         (b) if no such rate is so  published on such next  succeeding  Business
         Day,  the  Federal  Funds Rate for such day shall be the  average  rate
         charged to the Agent (in its  individual  capacity) on such day on such
         transactions as determined by the Agent.

                  "First Union  National  Bank" means First Union  National Bank
and its successors.

                                     51

<PAGE>


                  "Fixed Charge  Coverage  Ratio"  means,  as of the end of each
         fiscal quarter of the Consolidated  Parties for the twelve month period
         ending on such  date,  the  ratio of (a)  Consolidated  EBITDA  for the
         applicable  period to (b) the sum of (i) Consolidated  Accrued Interest
         Expense  for the  applicable  period  plus  (ii)  Consolidated  Capital
         Expenditures  for the applicable  period plus (iii)  Consolidated  Cash
         Taxes for the  applicable  period plus (iv)  dividends paid during such
         period plus (v)  Consolidated  Scheduled  Funded Debt  Payments for the
         applicable  period plus (vi) any  amounts  paid for the  repurchase  of
         preferred stock for the applicable  period.  The applicable  period for
         the foregoing  components  shall be for the four  consecutive  quarters
         ending as of the date of determination, except that for the first three
         complete  fiscal  quarters to occur after the Closing  Date,  the Fixed
         Charge Coverage Ratio shall be determined by annualizing the components
         thereof for the complete  fiscal  quarters  occurring after the Closing
         Date (such that the  components of the Fixed Charge  Coverage Ratio for
         the first complete fiscal quarter to occur after the Closing Date would
         be multiplied by four (4), the first two complete fiscal quarters would
         be multiplied by two (2) and the first three complete  fiscal  quarters
         would be multiplied by one and one-third (1-1/3)).

                  "Foreign  Subsidiary"  means, with respect to any Person,  any
         Subsidiary  of such Person which is not a Domestic  Subsidiary  of such
         Person.

                  "Funded  Indebtedness"  means,  with  respect  to any  Person,
         without  duplication,  (a) all  obligations of such Person for borrowed
         money,   (b)  all  obligations  of  such  Person  evidenced  by  bonds,
         debentures,  notes  or  similar  instruments,  or upon  which  interest
         payments are customarily made, (c) all obligations of such Person under
         conditional  sale or  other  title  retention  agreements  relating  to
         Property purchased by such Person (other than customary reservations or
         retentions of title under agreements with suppliers entered into in the
         ordinary course of business), (d) all obligations of such Person issued
         or assumed as the  deferred  purchase  price of  Property  or  services
         purchased  by such  Person  (other  than  trade  debt  incurred  in the
         ordinary course of business and due within six months of the incurrence
         thereof)  which would appear as  liabilities on a balance sheet of such
         Person,  (e) all Guaranty  Obligations of such Person,  (f) the maximum
         amount of all standby letters of credit issued or bankers'  acceptances
         facilities  created  for  the  account  of  such  Person  and,  without
         duplication,  all drafts drawn thereunder (to the extent unreimbursed),
         (g) all  preferred  Capital Stock issued by such Person and required by
         the terms thereof to be redeemed,  or for which mandatory  sinking fund
         payments are due, by a fixed date, (h)  Indebtedness  in respect of any
         synthetic lease, end loaded lease  financing,  tax retention  operating
         lease,  off-balance  sheet loan or similar  off-balance sheet financing
         product  to which  such  Person  is a party,  (i) all  Indebtedness  of
         another Person of the type referred to in clauses (a)-(h) above secured
         by (or for which the holder of such Funded Indebtedness has an existing
         right,  contingent  or  otherwise,  to be  secured  by) any Lien on, or
         payable  out of the  proceeds of  production  from,  Property  owned or
         acquired by such Person, whether or not the obligations secured thereby
         have been  assumed,  (j) all Guaranty  Obligations  of such Person with
         respect to  Indebtedness  of the type  referred  to in clauses  (a)-(h)
         above of another Person and (k) Indebtedness of the type referred to in
         clauses  (a)-(h)  above  of any  partnership  or  unincorporated  joint
         venture in which such Person is legally  obligated  or has a reasonable
         expectation of being liable with respect thereto.

                  "GAAP" means generally accepted  accounting  principles in the
         United States applied on a consistent basis and subject to the terms of
         Section 1.3.

                  "Governmental  Authority" means any Federal,  state,  local or
         foreign court or governmental  agency,  authority,  instrumentality  or
         regulatory body.

                                      52

<PAGE>


                  "Guarantor"  means  each  of  the  Persons   identified  as  a
         "Guarantor" on the signature  pages hereto and each  Additional  Credit
         Party which may hereafter  execute a Joinder  Agreement,  together with
         their successors and permitted  assigns,  and "Guarantor" means any one
         of them.

                  "Guaranty  Obligations"  means,  with  respect to any  Person,
         without  duplication,  any  obligations  of  such  Person  (other  than
         endorsements   in  the  ordinary   course  of  business  of  negotiable
         instruments  for  deposit or  collection)  guaranteeing  or intended to
         guarantee any  Indebtedness of any other Person in any manner,  whether
         direct or indirect,  and including  without  limitation any obligation,
         whether or not contingent, (a) to purchase any such Indebtedness or any
         Property  constituting  security  therefor,  (b) to  advance or provide
         funds  or  other  support  for the  payment  or  purchase  of any  such
         Indebtedness or to maintain working capital,  solvency or other balance
         sheet condition of such other Person (including without limitation keep
         well  agreements,  maintenance  agreements,  comfort letters or similar
         agreements  or   arrangements)   for  the  benefit  of  any  holder  of
         Indebtedness of such other Person,  (c) to lease or purchase  Property,
         securities or services primarily for the purpose of assuring the holder
         of such  Indebtedness,  or (d) to otherwise assure or hold harmless the
         holder of such Indebtedness against loss in respect thereof. The amount
         of any Guaranty Obligation  hereunder shall (subject to any limitations
         set forth  therein) be deemed to be an amount equal to the  outstanding
         principal  amount  (or  maximum  principal  amount,  if  larger) of the
         Indebtedness in respect of which such Guaranty Obligation is made.

                  "Hedging   Agreements"  means  any  interest  rate  protection
         agreement  or  foreign   currency   exchange   agreement   between  any
         Consolidated Party and any Lender, or any Affiliate of a Lender.

                                       53

<PAGE>


                  "Indebtedness" of any Person means (a) all obligations of such
         Person for borrowed money, (b) all obligations of such Person evidenced
         by bonds,  debentures,  notes or  similar  instruments,  or upon  which
         interest  payments are  customarily  made, (c) all  obligations of such
         Person  under  conditional  sale or other  title  retention  agreements
         relating to Property  purchased  by such Person  (other than  customary
         reservations  or retentions of title under  agreements  with  suppliers
         entered into in the ordinary  course of business),  (d) all obligations
         of such  Person  issued or assumed as the  deferred  purchase  price of
         Property or services  purchased  by such Person  (other than trade debt
         incurred in the  ordinary  course of business and due within six months
         of the  incurrence  thereof)  which would  appear as  liabilities  on a
         balance sheet of such Person,  (e) all obligations of such Person under
         take-or-pay or similar  arrangements or under  commodities  agreements,
         (f) all  Indebtedness  of others secured by (or for which the holder of
         such Indebtedness has an existing right, contingent or otherwise, to be
         secured by) any Lien on, or payable out of the  proceeds of  production
         from,  Property  owned or acquired by such  Person,  whether or not the
         obligations  secured  thereby  have  been  assumed,  (g)  all  Guaranty
         Obligations  of  such  Person,   (h)  the  principal   portion  of  all
         obligations of such Person under Capital Leases, (i) all obligations of
         such Person under  Hedging  Agreements,  (j) the maximum  amount of all
         standby  letters of credit  issued or bankers'  acceptances  facilities
         created for the account of such Person and,  without  duplication,  all
         drafts drawn thereunder (to the extent unreimbursed), (k) all preferred
         Capital  Stock issued by such Person and required by the terms  thereof
         to be redeemed,  or for which mandatory  sinking fund payments are due,
         by a  fixed  date  and  (l)  the  Indebtedness  of any  partnership  or
         unincorporated  joint venture in which such Person is a general partner
         or a joint venturer.

                  "Interest   Coverage   Ratio"  means,   with  respect  to  the
         Consolidated  Parties  on a  consolidated  basis for the  twelve  month
         period ending on the last day of any fiscal quarter of the Consolidated
         Parties,  the ratio of (a)  Consolidated  EBITDA for such period to (b)
         Consolidated Accrued Interest Expense for such period.

                  "Interest  Payment Date" means (a) as to Base Rate Loans,  the
         last day of each fiscal  quarter of the Borrower and the Maturity Date,
         and  (b) as to  Eurodollar  Loans,  the  last  day of  each  applicable
         Interest Period and the Maturity Date.

                  "Interest  Period" means, as to Eurodollar  Loans, a period of
         one,  two or  three  months'  duration,  as  the  Borrower  may  elect,
         commencing,  in each  case,  on the  date of the  borrowing  (including
         continuations and conversions thereof);  provided,  however, (a) if any
         Interest  Period would end on a day which is not a Business  Day,  such
         Interest Period shall be extended to the next  succeeding  Business Day
         (except that where the next  succeeding  Business Day falls in the next
         succeeding  calendar month,  then on the next preceding  Business Day),
         (b) no Interest  Period shall extend beyond the Maturity Date, (c) with
         regard to the Term Loans,  no Interest  Period shall extend  beyond any
         Principal  Amortization  Payment  Date unless the portion of Term Loans
         comprised  of Base Rate Loans  together  with the portion of Term Loans
         comprised of Eurodollar  Loans with Interest  Periods expiring prior to
         the date such Principal  Amortization Payment is due, is at least equal
         to the amount of such Principal  Amortization  Payment due on such date
         and (d) where an Interest  Period begins on a day for which there is no
         numerically  corresponding  day in the  calendar  month  in  which  the
         Interest  Period is to end, such Interest  Period shall end on the last
         Business Day of such calendar month.

                                       54

<PAGE>


                  "Investment" in any Person means (a) the acquisition  (whether
         for cash, property, services, assumption of Indebtedness, securities or
         otherwise) of assets (excluding goods and inventory used or sold in the
         ordinary course of business),  shares of Capital Stock,  bonds,  notes,
         debentures, partnership, joint ventures or other ownership interests or
         other  securities  of such other  Person or (b) any  deposit  with,  or
         advance,  loan or other extension of credit to, such Person (other than
         deposits  made in  connection  with the  purchase of equipment or other
         assets in the ordinary  course of  business)  or (c) any other  capital
         contribution  to or  investment  in  such  Person,  including,  without
         limitation,  any  Guaranty  Obligations  (including  any  support for a
         letter of credit  issued on  behalf of such  Person)  incurred  for the
         benefit of such Person,  but excluding any  Restricted  Payment to such
         Person.

                  "Issuing Lender" means First Union National Bank.

                  "Issuing Lender Fees" shall have the meaning  assigned to such
         term in Section 3.5(b)(iii).

                  "Joinder Agreement" means a Joinder Agreement substantially in
         the  form  of  Exhibit  7.12  hereto,  executed  and  delivered  by  an
         Additional  Credit Party in accordance  with the  provisions of Section
         7.12.

                  "Lender" means any of the Persons  identified as a "Lender" on
         the signature pages hereto, and any Person which may become a Lender by
         way of assignment in  accordance  with the terms hereof,  together with
         their successors and permitted assigns.

                  "Letter  of Credit"  means any letter of credit  issued by the
         Issuing  Lender for the account of any Credit Party in accordance  with
         the terms of Section 2.2.

                  "Leverage  Ratio"  means,  with  respect  to the  Consolidated
         Parties on a  consolidated  basis for the twelve month period ending on
         the  last  day  of  any  fiscal  quarter,   the  ratio  of  (a)  Funded
         Indebtedness of the Consolidated Parties on a consolidated basis on the
         last day of such period to (b) Consolidated EBITDA for such period.

                  "Lien" means any mortgage, pledge, hypothecation,  assignment,
         deposit arrangement, security interest, encumbrance, lien (statutory or
         otherwise),  preference,  priority or charge of any kind (including any
         agreement to give any of the foregoing,  any conditional  sale or other
         title retention agreement, any financing or similar statement or notice
         filed under the Uniform Commercial Code as adopted and in effect in the
         relevant jurisdiction or other similar recording or notice statute, and
         any lease in the nature thereof).

                  "Loan" or "Loans"  means the  Revolving  Loans and/or the Term
         Loans (or a portion of any Revolving Loan or Term Loan bearing interest
         at  the  Adjusted   Base  Rate  or  the  Adjusted   Eurodollar   Rate),
         individually or collectively, as appropriate.

                                      55
<PAGE>


                  "LOC Commitment" means the commitment of the Issuing Lender to
         issue  Letters  of  Credit  in an  aggregate  face  amount  at any time
         outstanding  (together  with the amounts of any  unreimbursed  drawings
         thereon) of up to the LOC Committed Amount.

                  "LOC Committed Amount" shall have the meaning assigned to such
         term in Section 2.2.

                  "LOC Documents"  means,  with respect to any Letter of Credit,
         such Letter of Credit, any amendments thereto,  any documents delivered
         in connection therewith,  any application therefor, and any agreements,
         instruments,   guarantees  or  other  documents   (whether  general  in
         application or applicable  only to such Letter of Credit)  governing or
         providing for (a) the rights and  obligations of the parties  concerned
         or at risk or (b) any collateral security for such obligations.

                  "LOC  Obligations"  means,  at any  time,  the  sum of (a) the
         maximum  amount  which  is,  or at  any  time  thereafter  may  become,
         available  to be  drawn  under  Letters  of  Credit  then  outstanding,
         assuming  compliance with all requirements for drawings  referred to in
         such  Letters of Credit plus (b) the  aggregate  amount of all drawings
         under  Letters  of  Credit  honored  by  the  Issuing  Lender  but  not
         theretofore reimbursed by the Borrower.

                  "London  Interbank  Offered Rate" shall mean,  with respect to
         any Eurodollar Loan for the Interest  Period  applicable  thereto,  the
         rate of interest  per annum  (rounded  upwards,  if  necessary,  to the
         nearest  1/100 of 1%) appearing on Telerate Page 3750 (or any successor
         page) as the London  interbank  offered rate for deposits in Dollars at
         approximately  11:00 A.M.  (London time) two Business Days prior to the
         first  day of  such  Interest  Period  for a term  comparable  to  such
         Interest Period; provided,  however, if more than one rate is specified
         on Telerate Page 3750, the applicable rate shall be the arithmetic mean
         of all such rates. If, for any reason, such rate is not available,  the
         term "London  Interbank  Offered Rate" shall mean,  with respect to any
         Eurodollar Loan for the Interest Period applicable thereto, the rate of
         interest per annum (rounded upwards, if necessary, to the nearest 1/100
         of 1%)  appearing on Reuters  Screen LIBO Page as the London  interbank
         offered  rate for  deposits  in  Dollars  at  approximately  11:00 A.M.
         (London time) two Business Days prior to the first day of such Interest
         Period  for a  term  comparable  to  such  Interest  Period;  provided,
         however,  if more than one rate is  specified  on Reuters  Screen  LIBO
         Page,  the  applicable  rate shall be the  arithmetic  mean of all such
         rates.

                                         56

<PAGE>


                  "Material  Adverse Effect" means a material  adverse effect on
         (a) the  condition  (financial  or  otherwise),  operations,  business,
         assets,  liabilities or prospects of any  Consolidated  Party,  (b) the
         ability of any Credit  Party to perform any material  obligation  under
         the Credit  Documents to which it is a party or (c) the material rights
         and remedies of the Lenders under the Credit Documents.

                  "Materials  of  Environmental  Concern"  means any gasoline or
         petroleum  (including  crude oil or any fraction  thereof) or petroleum
         products or any  hazardous  or toxic  substances,  materials or wastes,
         defined  or  regulated  as such in or  under  any  Environmental  Laws,
         including, without limitation, asbestos,  polychlorinated biphenyls and
         urea-formaldehyde insulation.

                  "Maturity  Date"  means  (a) as to  the  Revolving  Loans  and
         Letters of Credit (and the related LOC Obligations), March 31, 2004 and
         (b) as to the Term Loan,  the date of the final  maturity  of such Term
         Loan.

                  "Merger  Agreement"  means  the  Agreement  and Plan of Merger
         dated as of July 22, 1997 by and among the  Borrower,  Benihana  Merger
         Corp.,  Rudy's Restaurant Group,  Inc., Bayview Partners and Douglas M.
         Rudolph.

                  "Moody's"  means  Moody's  Investors  Service,  Inc.,  or  any
         successor  or assignee of the  business of such company in the business
         of rating securities.

                  "Multiemployer  Plan"  means a Plan  which is a  multiemployer
         plan as defined in Sections 3(37) or 4001(a)(3) of ERISA.

                  "Multiple  Employer Plan" means a Plan which any  Consolidated
         Party or any ERISA  Affiliate and at least one employer  other than the
         Consolidated Parties or any ERISA Affiliate are contributing sponsors.

                  "Net Cash Proceeds" means the aggregate cash proceeds received
         by the  Consolidated  Parties in respect  of any Asset  Disposition  or
         Equity  Issuance,   net  of  (a)  direct  costs   (including,   without
         limitation,  legal,  accounting and investment  banking fees, and sales
         commissions),  (b) taxes paid or payable as a result thereof;  it being
         understood that "Net Cash Proceeds" shall include,  without limitation,
         any cash  received upon the sale or other  disposition  of any non-cash
         consideration  received  by  the  Consolidated  Parties  in  any  Asset
         Disposition  or  Equity  Issuance,  and  (c) in the  case  of an  Asset
         Disposition only, any amounts payable in respect of Indebtedness  which
         is secured  by, or  otherwise  related  to, any  Property  which is the
         subject  thereof to the extent such  Indebtedness  and any  payments in
         respect thereof are paid with a portion of the proceeds therefrom.

                  "Note" or "Notes"  means the  Revolving  Notes and/or the Term
         Notes, individually or collectively, as appropriate.

                                      57

<PAGE>


                  "Notice of Borrowing"  means a written  notice of borrowing in
         substantially  the form of Exhibit  2.1(b)(i),  as  required by Section
         2.1(b)(i), Section 2.3(b) or Section 2.4(b).

                  "Notice of  Extension/Conversion"  means the written notice of
         extension or  conversion in  substantially  the form of Exhibit 3.2, as
         required by Section 3.2.

                  "Operating  Lease" means, as applied to any Person,  any lease
         (including,  without limitation,  leases which may be terminated by the
         lessee at any time) of any Property  (whether real,  personal or mixed)
         which is not a Capital  Lease  other  than any such lease in which that
         Person is the lessor.

                  "Other Taxes" means such term as is defined in Section 3.11.

                  "Participation  Interest"  means a  purchase  by a Lender of a
         participation  in Letters of Credit or LOC  Obligations  as provided in
         Section 2.2 or in any Loans as provided in Section 3.14.

                  "PBGC"  means  the  Pension   Benefit   Guaranty   Corporation
         established  pursuant  to  Subtitle  A of  Title  IV of  ERISA  and any
         successor thereof.

                  "Permitted Investments" means Investments which are either (a)
         cash and Cash Equivalents; (b) accounts receivable created, acquired or
         made by any  Consolidated  Party in the ordinary course of business and
         payable or  dischargeable in accordance with customary trade terms; (c)
         Investments  existing as of the Closing  Date and set forth in Schedule
         1.1A,   (d)  Guaranty   Obligations   permitted  by  Section  8.8;  (e)
         transactions  permitted  by  Section  8.9,  (f)  advances  or  loans to
         directors,  officers, employees, agents, customers or suppliers that do
         not exceed  $500,000 in the aggregate at any one time  outstanding  for
         all of the Consolidated  Parties;  (g) Investments in any Credit Party;
         or (h)  equity  securities  listed  on the  New  York  Stock  Exchange,
         provided  that  (i) the  long-term  credit  rating  of the  corporation
         issuing  such  securities  shall be A- (or the  equivalent  thereof) or
         better  from  S&P or A3 (or the  equivalent  thereof)  or  better  from
         Moody's and (ii) the purchase price paid for all such equity securities
         held at any time shall not exceed $500,000.

                  "Permitted Liens" means:

         (a)      Liens in favor of the Agent to secure the Credit Party
         Obligations;

                                    58

<PAGE>


         (b) Liens (other than Liens  created or imposed under ERISA) for taxes,
         assessments or governmental  charges or levies not yet due or Liens for
         taxes being  contested  in good faith by  appropriate  proceedings  for
         which adequate  reserves  determined in accordance  with GAAP have been
         established  (and as to which the Property  subject to any such Lien is
         not yet subject to foreclosure, sale or loss on account thereof);

         (c) statutory  Liens of landlords and Liens of carriers,  warehousemen,
         mechanics,  materialmen and suppliers and other Liens imposed by law or
         pursuant to customary  reservations  or  retentions of title arising in
         the ordinary  course of business,  provided that such Liens secure only
         amounts not yet due and payable or, if due and payable, are unfiled and
         no  other  action  has  been  taken to  enforce  the same or are  being
         contested in good faith by appropriate  proceedings  for which adequate
         reserves  determined in accordance with GAAP have been established (and
         as to which the Property subject to any such Lien is not yet subject to
         foreclosure, sale or loss on account thereof);

         (d) Liens (other than Liens created or imposed under ERISA) incurred or
         deposits  made by any  Consolidated  Party in the  ordinary  course  of
         business  in  connection  with  workers'   compensation,   unemployment
         insurance  and  other  types  of  social  security,  or to  secure  the
         performance of tenders, statutory obligations, bids, leases, government
         contracts,  performance  and  return-of-money  bonds and other  similar
         obligations  (exclusive  of  obligations  for the  payment of  borrowed
         money);

         (e)  Liens in  connection  with  attachments  or  judgments  (including
         judgment or appeal bonds)  provided that no Event of Default shall have
         occurred  hereunder,  and provided further,  that the judgments secured
         shall, within 30 days after the entry thereof,  have been discharged or
         execution  thereof stayed pending appeal, or shall have been discharged
         within 30 days after the expiration of any such stay;

         (f)   easements,   rights-of-way,    restrictions   (including   zoning
         restrictions),  minor  defects  or  irregularities  in title  and other
         similar charges or encumbrances not, in any material respect, impairing
         the use of the encumbered Property for its intended purposes;

         (g) Liens on Property securing purchase money  Indebtedness  (including
         Capital Leases) to the extent permitted under Section 8.1(c),  provided
         that any such  Lien  attaches  to such  Property  concurrently  with or
         within 30 days after the acquisition thereof;

         (h) any interest of title of a lessor under, and Liens arising from UCC
         financing   statements  (or  equivalent   filings,   registrations   or
         agreements in foreign  jurisdictions)  relating to, leases permitted by
         this Credit Agreement;

         (i) normal and  customary  rights of setoff  upon  deposits  of cash in
         favor of banks or other depository institutions provided, that no Event
         of Default shall have occurred hereunder; and

                                     59

<PAGE>


         (j) Liens  existing  as of the  Closing  Date and set forth on Schedule
         1.1B;  provided  that (i) no such Lien shall at any time be extended to
         or cover any Property  other than the Property  subject  thereto on the
         Closing Date and (ii) the principal amount of the Indebtedness  secured
         by such Liens shall not be extended, renewed, refunded or refinanced.

                  "Person"  means any  individual,  partnership,  joint venture,
         firm,  corporation,  limited liability company,  association,  trust or
         other  enterprise  (whether or not  incorporated)  or any  Governmental
         Authority.

                  "Plan" means any employee  benefit plan (as defined in Section
         3(3) of ERISA)  which is covered by ERISA and with respect to which any
         Consolidated  Party or any ERISA  Affiliate  is (or,  if such plan were
         terminated at such time, would under Section 4069 of ERISA be deemed to
         be) an "employer" within the meaning of Section 3(5) of ERISA.

                  "Pledge  Agreement" means the pledge agreement dated as of the
         Closing Date in the form of Exhibit 1.1A to be executed in favor of the
         Agent by each of the Credit Parties, as amended, modified,  restated or
         supplemented from time to time.

                  "Prime Rate" means the per annum rate of interest  established
         from time to time by First Union National Bank as its prime rate, which
         rate may not be the lowest  rate of  interest  charged  by First  Union
         National Bank to its customers.

                  "Principal  Amortization Payment" means a principal payment on
         the Term Loans as set forth in Section 2.3(d).

                  "Principal   Amortization  Payment  Date"  means  the  date  a
         Principal Amortization Payment is due.

                  "Principal  Office" means the principal  office of First Union
         National Bank, presently located at Charlotte, North Carolina.

                  "Property"  means  any  interest  in any kind of  property  or
         asset, whether real, personal or mixed, or tangible or intangible.

                  "Register" shall have the meaning given such term in Section
         11.3(c).

                  "Regulation  G,  T, U, or X"  means  Regulation  G, T, U or X,
         respectively,  of the Board of Governors of the Federal  Reserve System
         as from time to time in effect  and any  successor  to all or a portion
         thereof.

                                     60

<PAGE>


                  "Release"  means  any  spilling,  leaking,  pumping,  pouring,
         emitting, emptying, discharging, injecting, escaping, leaching, dumping
         or  disposing  into  the  environment  (including  the  abandonment  or
         discarding  of  barrels,   containers  and  other  closed   receptacles
         containing any Materials of Environmental Concern).

                  "Reportable  Event"  means  any of the  events  set  forth  in
         Section  4043(c)  of ERISA,  other  than  those  events as to which the
         notice requirement has been waived by regulation.

                  "Required  Lenders" means, at any time, Lenders which are then
         in compliance  with their  obligations  hereunder (as determined by the
         Agent) and holding in the  aggregate at least 51% of (a) the  Revolving
         Commitments (and  Participation  Interests therein) and the outstanding
         Term  Loans  (and  Participation  Interests  therein)  or  (b)  if  the
         Commitments   have  been   terminated,   the   outstanding   Loans  and
         Participation  Interests (including the Participation  Interests of the
         Issuing Lender in any Letters of Credit).

                  "Requirement of Law" means, as to any Person,  the certificate
         of  incorporation  and  by-laws or other  organizational  or  governing
         documents of such Person,  and any law,  treaty,  rule or regulation or
         determination  of  an  arbitrator  or a  court  or  other  Governmental
         Authority,  in each case  applicable  to or binding upon such Person or
         any of its material property is subject.

                  "Responsible Officer" means either the president or chief
         financial officer of the Borrower.

                  "Restricted   Payment"   means  (a)  any   dividend  or  other
         distribution, direct or indirect, on account of any shares of any class
         of  Capital  Stock  of  any   Consolidated   Party,  now  or  hereafter
         outstanding,  (b) any redemption,  retirement,  sinking fund or similar
         payment,  purchase or other acquisition for value,  direct or indirect,
         of any shares of any class of Capital Stock of any Consolidated  Party,
         now or hereafter  outstanding and (c) any payment made to retire, or to
         obtain the surrender  of, any  outstanding  warrants,  options or other
         rights  to  acquire  shares  of  any  class  of  Capital  Stock  of any
         Consolidated Party, now or hereafter outstanding.

                  "Revolving Commitment" means, with respect to each Lender, the
         commitment of such Lender in an aggregate  principal amount at any time
         outstanding of up to such Lender's Revolving  Commitment  Percentage of
         the  Revolving  Committed  Amount,  (a)  to  make  Revolving  Loans  in
         accordance  with the  provisions of Section  2.1(a) and (b) to purchase
         Participation  Interests  in Letters of Credit in  accordance  with the
         provisions of Section 2.2(c).

                                    61

<PAGE>


                  "Revolving  Commitment  Percentage" means, for any Lender, the
         percentage   identified  as  its  Revolving  Commitment  Percentage  on
         Schedule 2.1(a),  as such percentage may be modified in connection with
         any assignment made in accordance with the provisions of Section 11.3.

                  "Revolving  Committed  Amount" shall have the meaning assigned
         to such term in Section 2.1(a).

                  "Revolving Loans" shall have the meaning assigned to such term
         in Section 2.1(a).

                  "Revolving  Note" or  "Revolving  Notes" means the  promissory
         notes of the  Borrower in favor of each of the Lenders  evidencing  the
         Revolving Loans provided  pursuant to Section  2.1(e),  individually or
         collectively,  as appropriate, as such promissory notes may be amended,
         modified,  restated,  supplemented,  extended, renewed or replaced from
         time to time.

                  "S&P" means  Standard & Poor's  Ratings  Group,  a division of
         McGraw Hill, Inc., or any successor or assignee of the business of such
         division in the business of rating securities.

                  "Sale and Leaseback  Transaction" means any direct or indirect
         arrangement  with any  Person or to which  any such  Person is a party,
         providing  for the leasing to any  Consolidated  Party of any Property,
         whether  owned by such  Consolidated  Party as of the  Closing  Date or
         later acquired,  which has been or is to be sold or transferred by such
         Consolidated  Party to such  Person  or to any other  Person  from whom
         funds have been, or are to be,  advanced by such Person on the security
         of such Property.

                  "Security  Agreement" means the security agreement dated as of
         the Closing Date in the form of Exhibit 1.1B to be executed in favor of
         the Agent by each of the Credit Parties, as amended, modified, restated
         or supplemented from time to time.

                  "Single  Employer  Plan"  means any Plan  which is  covered by
         Title IV of ERISA, but which is not a Multiemployer  Plan or a Multiple
         Employer Plan.

                                       62

<PAGE>


                  "Solvent" or "Solvency"  means,  with respect to any Person as
         of a  particular  date,  that on such  date (a) such  Person is able to
         realize  upon its  assets  and pay its  debts  and  other  liabilities,
         contingent  obligations  and other  commitments  as they  mature in the
         normal course of business, (b) such Person does not intend to, and does
         not  believe  that it will,  incur  debts or  liabilities  beyond  such
         Person's  ability to pay as such debts and liabilities  mature in their
         ordinary  course,  (c) such  Person is not  engaged in a business  or a
         transaction, and is not about to engage in a business or a transaction,
         for which such Person's  Property would constitute  unreasonably  small
         capital after giving due  consideration  to the prevailing  practice in
         the  industry in which such Person is engaged or is to engage,  (d) the
         fair value of the  Property  of such  Person is greater  than the total
         amount  of  liabilities,   including,  without  limitation,  contingent
         liabilities,  of such Person and (e) the present fair salable  value of
         the  assets of such  Person is not less  than the  amount  that will be
         required to pay the  probable  liability of such Person on its debts as
         they become absolute and matured. In computing the amount of contingent
         liabilities at any time, it is intended that such  liabilities  will be
         computed  at  the  amount  which,   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 Fee" shall have the meaning assigned
         to such term in Section 3.5(b)(i).

                  "Subsidiary" means, as to any Person, (a) any corporation more
         than 50% of whose Capital  Stock of any class or classes  having by the
         terms  thereof  ordinary  voting  power  to  elect  a  majority  of the
         directors of such  corporation  (irrespective  of whether or not at the
         time, any class or classes of such corporation shall have or might have
         voting power by reason of the happening of any  contingency)  is at the
         time owned by such Person directly or indirectly through  Subsidiaries,
         and (b) any partnership,  association, joint venture or other entity in
         which such Person directly or indirectly through  Subsidiaries has more
         than 50% equity interest at any time.

                  "Taxes" means such term as is defined in Section 3.11.

                  "Trade  Letter of Credit Fee" shall have the meaning  assigned
         to such term in Section 3.5(b)(ii).

                  "Term Loan"  shall have the  meaning  assigned to such term in
         Section 2.3(a).

                  "Term Loan Commitment" means, with respect to each Lender, the
         commitment  of such  Lender to make its  portion  of the Term Loan in a
         principal amount equal to such Lender's Term Loan Commitment Percentage
         of the Term Loan Committed Amount.

                  "Term Loan Commitment  Percentage"  means, for any Lender, the
         percentage  identified  as  its  Term  Loan  Commitment  Percentage  on
         Schedule 2.1(a),  as such percentage may be modified in connection with
         any assignment made in accordance with the provisions of Section 11.3.

                  "Term Loan Committed  Amount" shall have the meaning  assigned
         to such term in Section 2.3(a).

                                        63
<PAGE>


         "Term Note" or "Term Notes" means the promissory  notes of the Borrower
         in favor of each of the  Lenders  evidencing  the Term  Loans  provided
         pursuant  to  Section   2.3(f),   individually  or   collectively,   as
         appropriate,  as  such  promissory  notes  may  be  amended,  modified,
         restated,  supplemented,  extended,  renewed or  replaced  from time to
         time.
                  "Voting  Stock"  means,  with  respect to any Person,  Capital
         Stock issued by such Person the holders of which are ordinarily, in the
         absence  of  contingencies,  entitled  to  vote  for  the  election  of
         directors  (or persons  performing  similar  functions) of such Person,
         even though the right so to vote has been suspended by the happening of
         such a contingency.

                  "Wholly Owned  Subsidiary"  of any Person means any Subsidiary
         100% of whose  Voting  Stock or other  equity  interests is at the time
         owned by such Person directly or indirectly  through other Wholly Owned
         Subsidiaries.

         1.2      Computation of Time Periods.

         For  purposes of  computation  of periods of time  hereunder,  the word
"from" means "from and  including"  and the words "to" and "until" each mean "to
but excluding."

         1.3      Accounting Terms.

         Except as otherwise  expressly  provided  herein,  all accounting terms
used herein shall be interpreted,  and all financial statements and certificates
and reports as to  financial  matters  required to be  delivered  to the Lenders
hereunder  shall be prepared,  in  accordance  with GAAP applied on a consistent
basis.  All  calculations  made for the purposes of determining  compliance with
this Credit Agreement shall (except as otherwise  expressly  provided herein) be
made by application of GAAP applied on a basis  consistent  with the most recent
annual or quarterly financial  statements delivered pursuant to Section 7.1 (or,
prior to the delivery of the first financial statements pursuant to Section 7.1,
consistent  with the  financial  statements  as at March  30,  1997);  provided,
however, if (a) the Borrower shall object to determining such compliance on such
basis at the time of delivery of such financial  statements due to any change in
GAAP or the  rules  promulgated  with  respect  thereto  or (b) the Agent or the
Required  Lenders  shall so object in writing  within 60 days after  delivery of
such  financial  statements,  then  such  calculations  shall be made on a basis
consistent with the most recent financial  statements  delivered by the Borrower
to the Lenders as to which no such objection shall have been made.

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<PAGE>

                                    SECTION 2

                                CREDIT FACILITIES

         2.1      Revolving Loans.


                  (a) Revolving Commitment.  Subject to the terms and conditions
         hereof and in reliance  upon the  representations  and  warranties  set
         forth herein,  each Lender  severally  agrees to make  available to the
         Borrower such  Lender's  Revolving  Commitment  Percentage of revolving
         credit loans requested by the Borrower in Dollars  ("Revolving  Loans")
         from time to time from the Closing  Date until the  Maturity  Date,  or
         such  earlier  date  as  the  Revolving  Commitments  shall  have  been
         terminated as provided  herein for the purposes  hereinafter set forth;
         provided,  however,  that the sum of the aggregate  principal amount of
         outstanding  Revolving  Loans shall not exceed FIFTEEN  MILLION DOLLARS
         ($15,000,000)  (as such  aggregate  maximum  amount may be reduced from
         time to time as  provided  in Section  3.4,  the  "Revolving  Committed
         Amount");   provided,   further,   (A)  with   regard  to  each  Lender
         individually,  such  Lender's  outstanding  Revolving  Loans  shall not
         exceed such Lender's Revolving  Commitment  Percentage of the Revolving
         Committed Amount, and (B) the aggregate principal amount of outstanding
         Revolving Loans plus LOC Obligations  outstanding  shall not exceed the
         Revolving  Committed  Amount.  Revolving Loans may consist of Base Rate
         Loans or Eurodollar  Loans, or a combination  thereof,  as the Borrower
         may request,  and may be repaid and  reborrowed in accordance  with the
         provisions hereof;  provided,  however,  that no more than 5 Eurodollar
         Loans shall be outstanding  hereunder at any time. For purposes hereof,
         Eurodollar Loans with different Interest Periods shall be considered as
         separate  Eurodollar  Loans,  even  if they  begin  on the  same  date,
         although borrowings, extensions and conversions may, in accordance with
         the  provisions  hereof,  be combined  at the end of existing  Interest
         Periods to  constitute  a new  Eurodollar  Loan with a single  Interest
         Period.  Revolving  Loans  hereunder  may be repaid and  reborrowed  in
         accordance with the provisions hereof.

                  (b)      Revolving Loan Borrowings.

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<PAGE>


                           (i) Notice of Borrowing. The Borrower shall request a
                  Revolving  Loan  borrowing  by written  notice (or  telephonic
                  notice  promptly  confirmed in writing) to the Agent not later
                  than  11:00  A.M.  (Charlotte,  North  Carolina  time)  on the
                  Business Day prior to the date of the  requested  borrowing in
                  the case of Base Rate  Loans,  and on the third  Business  Day
                  prior to the date of the  requested  borrowing  in the case of
                  Eurodollar  Loans.  Each such request for  borrowing  shall be
                  irrevocable  and shall  specify (A) that a  Revolving  Loan is
                  requested,  (B) the  date of the  requested  borrowing  (which
                  shall be a Business Day), (C) the aggregate  principal  amount
                  to be  borrowed,  and  (D)  whether  the  borrowing  shall  be
                  comprised   of  Base  Rate  Loans,   Eurodollar   Loans  or  a
                  combination  thereof,  and if Eurodollar  Loans are requested,
                  the Interest Period(s) therefor. If the Borrower shall fail to
                  specify  in any such  Notice of  Borrowing  (I) an  applicable
                  Interest  Period in the case of a Eurodollar  Loan,  then such
                  notice shall be deemed to be a request for an Interest  Period
                  of one month,  or (II) the type of Revolving  Loan  requested,
                  then such  notice  shall be deemed to be a request  for a Base
                  Rate Loan  hereunder.  The  Agent  shall  give  notice to each
                  affected  Lender  promptly  upon  receipt  of each  Notice  of
                  Borrowing  pursuant to this  Section  2.1(b)(i),  the contents
                  thereof and each such  Lender's  share of any  borrowing to be
                  made pursuant thereto.

                           (ii) Minimum  Amounts.  Each  Eurodollar Loan or Base
                  Rate  Loan  that is a  Revolving  Loan  shall be in a  minimum
                  aggregate  principal amount of $100,000 and integral multiples
                  of $25,000 in excess  thereof (or the remaining  amount of the
                  Revolving Committed Amount, if less).

                           (iii)  Advances.  Each Lender will make its Revolving
                  Commitment   Percentage  of  each   Revolving  Loan  borrowing
                  available  to the Agent for the  account  of the  Borrower  as
                  specified in Section  3.15(a),  or in such other manner as the
                  Agent may specify in writing, by 1:00 P.M.  (Charlotte,  North
                  Carolina time) on the date specified in the applicable  Notice
                  of Borrowing in Dollars and in funds immediately  available to
                  the Agent.  Such  borrowing will then be made available to the
                  Borrower by the Agent by crediting the account of the Borrower
                  on the books of such office with the  aggregate of the amounts
                  made  available  to the Agent by the Lenders and in like funds
                  as received by the Agent.

                  (c)  Repayment.  The principal  amount of all Revolving  Loans
                  shall  be due  and  payable  in  full  on  the  Maturity
                  Date,  unless accelerated sooner pursuant to Section 9.2.

                  (d)      Interest.  Subject to the provisions of Section 3.1,

                           (i) Base Rate Loans. During such periods as Revolving
                  Loans  shall be  comprised  in  whole or in part of Base  Rate
                  Loans, such Base Rate Loans shall bear interest at a per annum
                  rate equal to the Adjusted Base Rate.

                           (ii)  Eurodollar   Loans.   During  such  periods  as
                  Revolving  Loans  shall  be  comprised  in whole or in part of
                  Eurodollar Loans, such Eurodollar Loans shall bear interest at
                  a per annum rate equal to the Adjusted Eurodollar Rate.

         Interest  on  Revolving  Loans  shall be  payable  in  arrears  on each
         applicable  Interest  Payment  Date (or at such  other  times as may be
         specified herein).

                  (e) Revolving  Notes.  The Revolving Loans made by each Lender
         shall be evidenced by a duly executed  promissory  note of the Borrower
         to such Lender in an original  principal  amount equal to such Lender's
         Revolving  Commitment  Percentage of the Revolving Committed Amount and
         in substantially the form of Exhibit 2.1(e).

                                      66
<PAGE>


         2.2      Letter of Credit Subfacility.

                  (a) Issuance.  Subject to the terms and conditions  hereof and
         of the LOC Documents,  if any, and any other terms and conditions which
         the Issuing  Lender may  reasonably  require  and in reliance  upon the
         representations  and  warranties  set forth herein,  the Issuing Lender
         agrees to issue, and each Lender severally agrees to participate in the
         issuance by the Issuing  Lender of, standby and trade Letters of Credit
         in Dollars  from time to time from the Closing  Date until the Maturity
         Date as the Borrower may request,  in a form  acceptable to the Issuing
         Lender;  provided,  however,  that (i) the LOC Obligations  outstanding
         shall not at any time exceed ONE MILLION DOLLARS ($1,000,000) (the "LOC
         Committed  Amount") and (ii) the sum of the aggregate  principal amount
         of outstanding  Revolving Loans plus LOC Obligations  outstanding shall
         not at any time exceed the  Revolving  Committed  Amount.  No Letter of
         Credit  shall (x) have an original  expiry date more than one year from
         the date of issuance or (y) as originally  issued or as extended,  have
         an expiry  date  extending  beyond the  Maturity  Date.  Each Letter of
         Credit  shall comply with the related LOC  Documents.  The issuance and
         expiry dates of each Letter of Credit shall be a Business Day.

                  (b) Notice and  Reports.  The  request  for the  issuance of a
         Letter of Credit  shall be  submitted  by the  Borrower  to the Issuing
         Lender at least three (3) Business Days prior to the requested  date of
         issuance.  The  Issuing  Lender  will,  at  least  quarterly  and  more
         frequently upon request,  disseminate to each of the Lenders a detailed
         report  specifying  the  Letters  of Credit  which are then  issued and
         outstanding  and any  activity  with  respect  thereto  which  may have
         occurred  since the date of the prior report,  and  including  therein,
         among other  things,  the  beneficiary,  the face amount and the expiry
         date, as well as any payment or expirations which may have occurred.

                                       67

<PAGE>


                  (c) Participation.  Each Lender,  upon issuance of a Letter of
         Credit,   shall  be  deemed  to  have  purchased   without  recourse  a
         Participation  Interest  from the  applicable  Issuing  Lender  in such
         Letter  of  Credit  and  the  obligations  arising  thereunder  and any
         collateral relating thereto, in each case in an amount equal to its pro
         rata share of the obligations under such Letter of Credit (based on the
         respective Revolving  Commitment  Percentages of the Lenders) and shall
         absolutely,  unconditionally and irrevocably assume and be obligated to
         pay to the Issuing Lender and discharge when due, its pro rata share of
         the obligations  arising under such Letter of Credit.  Without limiting
         the scope and nature of each  Lender's  Participation  Interest  in any
         Letter of Credit,  to the extent that the  Issuing  Lender has not been
         reimbursed  as required  hereunder  or under any such Letter of Credit,
         each such Lender shall pay to the Issuing  Lender its pro rata share of
         such unreimbursed  drawing in same day funds on the day of notification
         by the  Issuing  Lender  of an  unreimbursed  drawing  pursuant  to the
         provisions of subsection (d) below. The obligation of each Lender to so
         reimburse the Issuing  Lender shall be absolute and  unconditional  and
         shall not be  affected  by the  occurrence  of a  Default,  an Event of
         Default or any other occurrence or event. Any such reimbursement  shall
         not  relieve or  otherwise  impair the  obligation  of the  Borrower to
         reimburse the Issuing Lender under any Letter of Credit,  together with
         interest as hereinafter provided.

                                       68

<PAGE>


                  (d)  Reimbursement.  In the  event of any  drawing  under  any
         Letter of Credit, the Issuing Lender will promptly notify the Borrower.
         Unless the Borrower  shall  immediately  notify the Issuing Lender that
         the Borrower intends to otherwise reimburse the Issuing Lender for such
         drawing,  the  Borrower  shall be  deemed  to have  requested  that the
         Lenders make a Revolving  Loan in the amount of the drawing as provided
         in subsection (e) below on the related  Letter of Credit,  the proceeds
         of which will be used to satisfy the related reimbursement obligations.
         The  Borrower  promises to reimburse  the Issuing  Lender on the day of
         drawing  under any  Letter of Credit  (either  with the  proceeds  of a
         Revolving Loan obtained  hereunder or otherwise) in same day funds.  If
         the  Borrower  shall fail to reimburse  the Issuing  Lender as provided
         hereinabove,  the  unreimbursed  amount  of  such  drawing  shall  bear
         interest  at a per  annum  rate  equal to the Base  Rate  plus 3%.  The
         Borrower's  reimbursement  obligations  hereunder shall be absolute and
         unconditional  under all  circumstances  irrespective  of any rights of
         setoff,  counterclaim  or defense to payment the  Borrower may claim or
         have  against  the  Issuing  Lender,   the  Agent,  the  Lenders,   the
         beneficiary  of the Letter of Credit  drawn  upon or any other  Person,
         including  without  limitation  any defense based on any failure of the
         Borrower  or any other  Credit  Party to receive  consideration  or the
         legality,  validity,  regularity or  unenforceability  of the Letter of
         Credit.  The Issuing  Lender will promptly  notify the other Lenders of
         the amount of any  unreimbursed  drawing and each Lender shall promptly
         pay to the Agent for the account of the  Issuing  Lender in Dollars and
         in immediately  available  funds,  the amount of such Lender's pro rata
         share of such unreimbursed  drawing.  Such payment shall be made on the
         day such notice is  received by such Lender from the Issuing  Lender if
         such  notice is  received  at or before  2:00  P.M.  (Charlotte,  North
         Carolina time)  otherwise such payment shall be made at or before 12:00
         Noon  (Charlotte,  North  Carolina  time)  on  the  Business  Day  next
         succeeding the day such notice is received. If such Lender does not pay
         such  amount to the  Issuing  Lender in full  upon such  request,  such
         Lender  shall,  on  demand,  pay to the  Agent for the  account  of the
         Issuing Lender interest on the unpaid amount during the period from the
         date of such drawing  until such Lender pays such amount to the Issuing
         Lender in full at a rate per annum  equal  to, if paid  within  two (2)
         Business Days of the date that such Lender is required to make payments
         of such amount  pursuant to the preceding  sentence,  the Federal Funds
         Rate and  thereafter  at a rate equal to the Base Rate.  Each  Lender's
         obligation to make such payment to the Issuing Lender, and the right of
         the  Issuing  Lender  to  receive  the  same,  shall  be  absolute  and
         unconditional, shall not be affected by any circumstance whatsoever and
         without  regard to the  termination  of this  Credit  Agreement  or the
         Commitments  hereunder,  the existence of a Default or Event of Default
         or the  acceleration of the  obligations of the Borrower  hereunder and
         shall be made without any offset,  abatement,  withholding or reduction
         whatsoever.  Simultaneously  with the making of each such  payment by a
         Lender to the Issuing  Lender,  such Lender  shall,  automatically  and
         without  any further  action on the part of the Issuing  Lender or such
         Lender,  acquire a  Participation  Interest in an amount  equal to such
         payment  (excluding the portion of such payment  constituting  interest
         owing  to the  Issuing  Lender)  in the  related  unreimbursed  drawing
         portion of the LOC  Obligation  and in the interest  thereon and in the
         related LOC Documents, and shall have a claim against the Borrower with
         respect thereto.

                                         69

<PAGE>


                  (e) Repayment  with Revolving  Loans.  On any day on which the
         Borrower  shall have  requested,  or been deemed to have  requested,  a
         Revolving Loan advance to reimburse a drawing under a Letter of Credit,
         the Agent shall give notice to the  Lenders  that a Revolving  Loan has
         been  requested  or  deemed  requested  by the  Borrower  to be made in
         connection  with a drawing  under a Letter of  Credit,  in which case a
         Revolving  Loan  advance  comprised  of Base Rate Loans (or  Eurodollar
         Loans to the extent the Borrower has complied  with the  procedures  of
         Section  2.1(b)(i) with respect  thereto) shall be immediately  made to
         the Borrower by all Lenders  (notwithstanding  any  termination  of the
         Commitments  pursuant to Section 9.2) pro rata based on the  respective
         Revolving  Commitment  Percentages  of the Lenders  (determined  before
         giving effect to any termination of the Commitments pursuant to Section
         9.2) and the  proceeds  thereof  shall be paid  directly to the Issuing
         Lender for  application to the respective  LOC  Obligations.  Each such
         Lender  hereby  irrevocably  agrees to make its pro rata  share of each
         such Revolving Loan immediately upon any such request or deemed request
         in the amount, in the manner and on the date specified in the preceding
         sentence  notwithstanding  (i) the  amount  of such  borrowing  may not
         comply  with  the  minimum  amount  for  advances  of  Revolving  Loans
         otherwise required hereunder,  (ii) whether any conditions specified in
         Section 5.2 are then satisfied,  (iii) whether a Default or an Event of
         Default  then  exists,  (iv)  failure  for any such  request  or deemed
         request for Revolving  Loan to be made by the time  otherwise  required
         hereunder,  (v) whether the date of such  borrowing  is a date on which
         Revolving  Loans are otherwise  permitted to be made  hereunder or (vi)
         any termination of the Commitments  relating thereto  immediately prior
         to or  contemporaneously  with such  borrowing.  In the event  that any
         Revolving  Loan  cannot  for any  reason be made on the date  otherwise
         required  above  (including,  without  limitation,  as a result  of the
         commencement of a proceeding  under the Bankruptcy Code with respect to
         the Borrower or any Credit Party),  then each such Lender hereby agrees
         that it shall  forthwith  purchase (as of the date such borrowing would
         otherwise  have occurred,  but adjusted for any payments  received from
         the Borrower on or after such date and prior to such purchase) from the
         Issuing  Lender such  Participation  Interests in the  outstanding  LOC
         Obligations as shall be necessary to cause each such Lender to share in
         such LOC  Obligations  ratably  (based  upon the  respective  Revolving
         Commitment  Percentages of the Lenders (determined before giving effect
         to any  termination  of the  Commitments  pursuant  to  Section  9.2)),
         provided  that at the  time any  purchase  of  Participation  Interests
         pursuant to this sentence is actually made, the purchasing Lender shall
         be required to pay to the Issuing Lender, to the extent not paid to the
         Issuer by the Borrower in accordance  with the terms of subsection  (d)
         above,  interest on the  principal  amount of  Participation  Interests
         purchased  for  each day from and  including  the day upon  which  such
         borrowing  would  otherwise  have occurred to but excluding the date of
         payment for such Participation Interests, at the rate equal to, if paid
         within two (2) Business Days of the date of the Revolving Loan advance,
         the Federal  Funds  Rate,  and  thereafter  at a rate equal to the Base
         Rate.

                  (f)  Designation of Consolidated  Parties as Account  Parties.
         Notwithstanding  anything  to the  contrary  set  forth in this  Credit
         Agreement,  including  without  limitation  Section 2.2(a), a Letter of
         Credit issued hereunder may contain a statement to the effect that such
         Letter of Credit is issued  for the  account  of a  Consolidated  Party
         other than the Borrower,  provided that notwithstanding such statement,
         the Borrower shall be the actual account party for all purposes of this
         Credit Agreement for such Letter of Credit and such statement shall not
         affect the Borrower's reimbursement  obligations hereunder with respect
         to such Letter of Credit.

                  (g) Renewal, Extension. The renewal or extension of any Letter
         of Credit shall,  for purposes  hereof,  be treated in all respects the
         same as the issuance of a new Letter of Credit hereunder.

                  (h) Uniform Customs and Practices. The Issuing Lender may have
         the  Letters of Credit be subject to The Uniform  Customs and  Practice
         for  Documentary  Credits,  as published as of the date of issue by the
         International  Chamber of Commerce  (the "UCP"),  in which case the UCP
         may be  incorporated  therein  and deemed in all  respects to be a part
         thereof.

                  (i)      Indemnification; Nature of Issuing Lender's Duties.


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<PAGE>


                           (i) In addition to its other  obligations  under this
                  Section 2.2, the Borrower  hereby  agrees to pay, and protect,
                  indemnify and save each Lender harmless from and against,  any
                  and all claims, demands, liabilities,  damages, losses, costs,
                  charges and expenses  (including  reasonable  attorneys' fees)
                  (unless the same shall have resulted from such Lender's  gross
                  negligence or willful  misconduct)  that such Lender may incur
                  or be subject to as a consequence,  direct or indirect, of (A)
                  the  issuance  of any  Letter of Credit or (B) the  failure of
                  such  Lender to honor a drawing  under a Letter of Credit as a
                  result of any act or omission,  whether  rightful or wrongful,
                  of any  present  or future de jure or de facto  government  or
                  Governmental  Authority  (all such acts or  omissions,  herein
                  called "Government Acts").

                           (ii)  As  between  the   Borrower   and  the  Lenders
                  (including the Issuing Lender),  the Borrower shall assume all
                  risks of the acts, omissions or misuse of any Letter of Credit
                  by  the  beneficiary  thereof.  Unless  the  same  shall  have
                  resulted  from  such  Lenders  gross   negligence  or  willful
                  misconduct,  no Lender (including the Issuing Lender) shall be
                  responsible:   (A)  for  the  form,   validity,   sufficiency,
                  accuracy,   genuineness   or  legal  effect  of  any  document
                  submitted by any party in connection  with the application for
                  and  issuance  of any Letter of  Credit,  even if it should in
                  fact prove to be in any or all respects invalid, insufficient,
                  inaccurate,  fraudulent  or forged;  (B) for 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,  that may prove to be invalid or ineffective  for any
                  reason; (C) for 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;  (D) for any  loss or  delay  in the  transmission  or
                  otherwise of any document  required in order to make a drawing
                  under a Letter of Credit or of the proceeds  thereof;  and (E)
                  for any consequences arising from causes beyond the control of
                  such Lender,  including,  without  limitation,  any Government
                  Acts. None of the above shall affect,  impair,  or prevent the
                  vesting of the Issuing Lender's rights or powers hereunder.

                           (iii)  In  furtherance   and  extension  and  not  in
                  limitation of the specific  provisions  hereinabove set forth,
                  any  action  taken or omitted  by any  Lender  (including  the
                  Issuing  Lender),  under or in  connection  with any Letter of
                  Credit or the  related  certificates,  if taken or  omitted in
                  good  faith,  shall not put such  Lender  under any  resulting
                  liability to the Borrower or any other Credit Party. It is the
                  intention of the parties that this Credit  Agreement  shall be
                  construed  and  applied to protect and  indemnify  each Lender
                  (including  the  Issuing  Lender)  against  any and all  risks
                  involved  in the  issuance  of the  Letters of Credit,  all of
                  which risks are hereby  assumed by the  Borrower (on behalf of
                  itself  and  each of the  other  Credit  Parties),  including,
                  without  limitation,  any and all  Government  Acts. No Lender
                  (including the Issuing  Lender)  shall,  in any way, be liable
                  for any  failure  by such  Lender  or  anyone  else to pay any
                  drawing  under  any  Letter  of  Credit  as a  result  of  any
                  Government  Acts or any other cause beyond the control of such
                  Lender.

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<PAGE>


                           (iv)  Nothing in this  subsection  (h) is intended to
                  limit the reimbursement  obligations of the Borrower contained
                  in subsection (d) above. The obligations of the Borrower under
                  this  subsection  (h) shall  survive the  termination  of this
                  Credit Agreement.  No act or omissions of any current or prior
                  beneficiary  of a Letter of Credit  shall in any way affect or
                  impair  the  rights  of the  Lenders  (including  the  Issuing
                  Lender) to  enforce  any  right,  power or benefit  under this
                  Credit Agreement.

                           (v)   Notwithstanding   anything   to  the   contrary
                  contained in this  subsection  (h), the Borrower shall have no
                  obligation  to  indemnify  any Lender  (including  the Issuing
                  Lender) in respect of any  liability  incurred  by such Lender
                  (A)  arising  solely  out of the gross  negligence  or willful
                  misconduct  of  such  Lender,  as  determined  by a  court  of
                  competent jurisdiction, or (B) caused by such Lender's failure
                  to pay under any Letter of Credit after  presentation to it of
                  a request strictly  complying with the terms and conditions of
                  such Letter of Credit,  as  determined by a court of competent
                  jurisdiction,  unless such payment is  prohibited  by any law,
                  regulation, court order or decree.

                  (j)   Responsibility   of  Issuing  Lender.  It  is  expressly
         understood  and  agreed  that the  obligations  of the  Issuing  Lender
         hereunder  to the  Lenders are only those  expressly  set forth in this
         Credit  Agreement  and that the  Issuing  Lender  shall be  entitled to
         assume that the conditions precedent set forth in Section 5.2 have been
         satisfied  unless it shall have acquired actual knowledge that any such
         condition  precedent has not been satisfied;  provided,  however,  that
         nothing set forth in this Section 2.2 shall be deemed to prejudice  the
         right of any Lender to recover from the Issuing Lender any amounts made
         available by such Lender to the Issuing Lender pursuant to this Section
         2.2  in the  event  that  it is  determined  by a  court  of  competent
         jurisdiction  that the  payment  with  respect  to a Letter  of  Credit
         constituted  gross negligence or willful  misconduct on the part of the
         Issuing Lender.

                  (k) Conflict with LOC Documents.  In the event of any conflict
         between  this Credit  Agreement  and any LOC  Document  (including  any
         letter of credit application), this Credit Agreement shall control.

                  2.3      Term Loan.

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<PAGE>


                  (a) Term  Commitment.  Subject  to the  terms  and  conditions
         hereof and in reliance  upon the  representations  and  warranties  set
         forth  herein each Lender  severally  agrees to make  available  to the
         Borrower  on the  Closing  Date  such  Lender's  Term  Loan  Commitment
         Percentage of a term loan in Dollars (the "Term Loan") in the aggregate
         principal  amount of TWELVE MILLION  DOLLARS  ($12,000,000)  (the "Term
         Loan Committed  Amount") for the purposes  hereinafter  set forth.  The
         Term Loan may  consist of Base Rate  Loans or  Eurodollar  Loans,  or a
         combination  thereof, as the Borrower may request;  provided,  however,
         that no more than 5 Eurodollar Loans shall be outstanding  hereunder at
         any time. For purposes hereof, Eurodollar Loans with different Interest
         Periods shall be considered as separate  Eurodollar Loans, even if they
         begin on the same date, although borrowings, extensions and conversions
         may, in accordance with the provisions  hereof,  be combined at the end
         of existing Interest Periods to constitute a new Eurodollar Loan with a
         single  Interest  Period.  Amounts  repaid  on the Term Loan may not be
         reborrowed.

                  (b)  Borrowing  Procedures.   The  Borrower  shall  submit  an
         appropriate  Notice of Borrowing to the Agent not later than 11:00 A.M.
         (Charlotte,  North Carolina time) on the Closing Date,  with respect to
         the portion of the Term Loan initially  consisting of a Base Rate Loan,
         or on the third Business Day prior to the Closing Date, with respect to
         the  portion  of the  Term  Loan  initially  consisting  of one or more
         Eurodollar  Loans,  which Notice of Borrowing  shall be irrevocable and
         shall specify (i) that the funding of a Term Loan is requested and (ii)
         whether  the funding of the Term Loan shall be  comprised  of Base Rate
         Loans,  Eurodollar  Loans or a combination  thereof,  and if Eurodollar
         Loans are requested,  the Interest Period(s) therefor.  If the Borrower
         shall fail to deliver  such Notice of  Borrowing  to the Agent by 11:00
         A.M.  (Charlotte,  North Carolina time) on the third Business Day prior
         to the  Closing  Date,  then the full  amount of the Term Loan shall be
         disbursed  on the Closing  Date as a Base Rate Loan.  Each Lender shall
         make its Term Loan Commitment  Percentage of the Term Loan available to
         the Agent for the  account of the  Borrower  at the office of the Agent
         specified in Schedule 2.1(a),  or at such other office as the Agent may
         designate in writing, by 1:00 P.M. (Charlotte,  North Carolina time) on
         the Closing Date in Dollars and in funds  immediately  available to the
         Agent.

                  (c) Minimum  Amounts.  Each  Eurodollar Loan or Base Rate Loan
         that is part of the Term Loan shall be in an aggregate principal amount
         that is not less than  $500,000 and integral  multiples of $100,000 (or
         the then remaining principal balance of the Term Loan, if less).

                  (d) Repayment of Term Loan.  The principal  amount of the Term
         Loan  shall  be  repaid  in  twenty-four  (24)  consecutive   quarterly
         installments as follows,  unless accelerated sooner pursuant to Section
         9.2:

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<PAGE>


       Principal Amortization         Term Loan Principal
           Payment Dates              Amortization Payment
     --------------------------     ------------------------
         June 30, 1998                      $250,000

         September 30, 1998                 $250,000

         December 31, 1998                  $250,000

         March 31, 1998                     $250,000

         June 30, 1999                      $250,000

         September 30, 1999                 $250,000

         December 31, 1999                  $250,000

         March 31, 2000                     $250,000

         June 30, 2000                      $500,000

         September 30, 2000                 $500,000

         December 31, 2000                  $500,000

         March 31, 2001                     $500,000

         June 30, 2001                      $500,000

         September 30, 2001                 $500,000

         December 31, 2001                  $500,000

         March 31, 2002                     $500,000

         June 30, 2002                      $750,000

         September 30, 2002                 $750,000

         December 31, 2002                  $750,000

         March 31, 2003                     $750,000

         June 30, 2003                      $750,000

         September 30, 2003                 $750,000

         December 31, 2003                  $750,000

         March 31, 2004                     $750,000

                      (e)  Interest.  Subject to the  provisions of Section 3.1,
              the Term Loan shall bear interest at a per annum rate equal to:

                               (i) Base Rate Loans.  During such  periods as the
                      Term Loan shall be  comprised  in whole or in part of Base
                      Rate Loans,  such Base Rate Loans shall bear interest at a
                      per annum rate equal to the Adjusted Base Rate.

                               (ii) Eurodollar Loans. During such periods as the
                      Term  Loan  shall  be  comprised  in  whole  or in part of
                      Eurodollar   Loans,   such  Eurodollar  Loans  shall  bear
                      interest  at a  per  annum  rate  equal  to  the  Adjusted
                      Eurodollar Rate.

              Interest  on the Term Loan  shall be  payable  in  arrears on each
              applicable Interest Payment Date (or at such other times as may be
              specified herein).

                      (f) Term Notes.  The portion of the Term Loan made by each
              Lender shall be evidenced by a duly  executed  promissory  note of
              the Borrower to such Lender in an original  principal amount equal
              to such Lender's Term Loan Commitment  Percentage of the Term Loan
              and substantially in the form of Exhibit 2.3(f).

                                       74

<PAGE>



                                    SECTION 3

                 OTHER PROVISIONS RELATING TO CREDIT FACILITIES

         3.1      Default Rate.

         Upon  the  occurrence,  and  during  the  continuance,  of an  Event of
Default,  the principal of and, to the extent permitted by law,  interest on the
Loans and any other amounts owing hereunder or under the other Credit  Documents
shall bear  interest,  payable on demand,  at a per annum rate equal to the Base
Rate plus 3%.

         3.2      Extension and Conversion.


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<PAGE>


         Subject  to the terms of  Section  5.2,  the  Borrower  shall  have the
option,  on any  Business  Day,  to  extend  existing  Loans  into a  subsequent
permissible  Interest Period or to convert Loans into Loans of another  interest
rate type;  provided,  however,  that (i)  except as  provided  in Section  3.8,
Eurodollar  Loans may be converted  into Base Rate Loans only on the last day of
the Interest Period applicable  thereto,  (ii) Eurodollar Loans may be extended,
and Base Rate Loans may be converted into Eurodollar  Loans,  only if no Default
or Event of Default is in  existence  on the date of  extension  or  conversion,
(iii) Loans extended as, or converted into, Eurodollar Loans shall be subject to
the terms of the  definition  of "Interest  Period" set forth in Section 1.1 and
shall be in such  minimum  amounts as  provided  in, with  respect to  Revolving
Loans,  Section  2.1(b)(ii),  or, with respect to the Term Loan, Section 2.3(c),
(iv) no more than 5 Eurodollar Loans shall be outstanding  hereunder at any time
(it being understood that, for purposes hereof,  Eurodollar Loans with different
Interest Periods shall be considered as separate  Eurodollar Loans, even if they
begin on the same date, although borrowings,  extensions and conversions may, in
accordance  with the  provisions  hereof,  be  combined  at the end of  existing
Interest  Periods to  constitute a new  Eurodollar  Loan with a single  Interest
Period) and (v) any request for  extension or  conversion  of a Eurodollar  Loan
which shall fail to specify an Interest  Period  shall be deemed to be a request
for an Interest Period of one month.  Each such extension or conversion shall be
effected  by the  Borrower  by  giving  a  Notice  of  Extension/Conversion  (or
telephonic  notice  promptly  confirmed  in  writing) to the office of the Agent
specified in specified in Schedule 2.1(a),  or at such other office as the Agent
may designate in writing,  prior to 11:00 A.M. (Charlotte,  North Carolina time)
on the Business Day of, in the case of the conversion of a Eurodollar  Loan into
a Base Rate  Loan,  and on the third  Business  Day prior to, in the case of the
extension of a  Eurodollar  Loan as, or  conversion  of a Base Rate Loan into, a
Eurodollar  Loan, the date of the proposed  extension or conversion,  specifying
the date of the proposed extension or conversion, the Loans to be so extended or
converted,  the types of Loans into which such Loans are to be converted and, if
appropriate,  the applicable Interest Periods with respect thereto. Each request
for  extension  or  conversion  shall be  irrevocable  and  shall  constitute  a
representation  and  warranty  by the  Borrower  of  the  matters  specified  in
subsections  (b), (c) and (d) of Section 5.2. In the event the Borrower fails to
request  extension or conversion of any Eurodollar  Loan in accordance with this
Section,  or any such  conversion  or extension is not  permitted or required by
this Section, then such Eurodollar Loan shall be automatically  converted into a
Base Rate Loan at the end of the Interest Period applicable  thereto.  The Agent
shall give each Lender  notice as promptly as  practicable  of any such proposed
extension or conversion affecting any Loan.

         3.3      Prepayments.

                  (a) Voluntary  Prepayments.  The Borrower shall have the right
         to prepay  Loans in whole or in part from time to time,  but  otherwise
         without  premium  or  penalty;  provided,  however,  that each  partial
         prepayment of Loans shall be in a minimum  principal amount of $250,000
         and integral  multiples  of $50,000.  Subject to the  foregoing  terms,
         amounts prepaid under this Section 3.3(a) with respect to the Term Loan
         shall  be  applied  ratably  to the  remaining  Principal  Amortization
         Payments  thereof;  provided  that if the  Borrower  fails to specify a
         voluntary  prepayment  then such  prepayment  shall be applied first to
         Revolving  Loans and then to the Term Loan  (ratably  to the  remaining
         Principal  Amortization  Payments thereof),  in each case first to Base
         Rate Loans and then to  Eurodollar  Loans in direct  order of  Interest
         Period  maturities.  All prepayments under this Section 3.3(a) shall be
         subject to Section 3.12.

                  (b)      Mandatory Prepayments.

                           (i) Revolving  Committed  Amount. If at any time, the
                  sum of the aggregate principal amount of outstanding Revolving
                  Loans  plus  LOC  Obligations  outstanding  shall  exceed  the
                  Revolving  Committed  Amount,  the Borrower  immediately shall
                  prepay the Revolving Loans and (after all Revolving Loans have
                  been repaid) cash  collateralize  the LOC  Obligations,  in an
                  amount sufficient to eliminate such excess.

                           (ii)  Asset   Dispositions.   Immediately   upon  the
                  occurrence  of any Asset  Disposition  other than an  Excluded
                  Asset  Disposition,  the Borrower shall prepay the Loans in an
                  aggregate amount equal to the Net Cash Proceeds of the related
                  Asset  Disposition (such prepayment to be applied as set forth
                  in clause (iv) below);  provided,  however,  that no mandatory
                  prepayments  shall be required  hereunder if, at the time such
                  Asset Disposition  occurs, the ratio of Funded Indebtedness of
                  the Consolidated  Parties to Consolidated EBITDA at the end of
                  the immediately  preceding fiscal quarter was less than 2.0 to
                  1.0.

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<PAGE>


                           (iii) Issuances of Equity.  Immediately  upon receipt
                  by a Consolidated  Party of proceeds from any Equity  Issuance
                  occurring  at any time when the  Leverage  Ratio at the end of
                  the immediately  preceding fiscal quarter was greater than 2.0
                  to 1.0,  the  Borrower  shall prepay the Loans in an aggregate
                  amount  equal to 50% of the Net Cash  Proceeds  of such Equity
                  Issuance to the Lenders (such  prepayment to be applied as set
                  forth  in  clause  (iv)  below);  provided,  however,  that no
                  mandatory  prepayments shall be required  hereunder if, at the
                  time such Equity  Issuance  occurs,  the Leverage Ratio at the
                  end of the immediately  preceding fiscal quarter was less than
                  2.0 to 1.0;  provided further,  that if mandatory  prepayments
                  are required to be made hereunder, then such prepayments shall
                  be made only to the extent  required to restore  the  Leverage
                  Ratio to 2.0 to 1.0.

                           (iv)  Application  of  Mandatory   Prepayments.   All
                  amounts  required to be paid  pursuant to this Section  3.3(b)
                  shall be applied as follows:  (A) with  respect to all amounts
                  prepaid pursuant to Section 3.3(b)(i),  to Revolving Loans and
                  (after  all  Revolving  Loans  have  been  repaid)  to a  cash
                  collateral  account in respect  of LOC  Obligations,  (B) with
                  respect to all amounts prepaid pursuant to Section  3.3(b)(ii)
                  and  3.3(b)(iii),  (1) first to the Term Loan  (ratably to the
                  remaining  Principal  Amortization  Payments  thereof) and (2)
                  second to the Revolving  Loans and (after all Revolving  Loans
                  have been repaid) to a cash  collateral  account in respect of
                  LOC  Obligations  (with  a  corresponding   reduction  in  the
                  Revolving  Committed  Amount in an amount equal to all amounts
                  applied pursuant to this clause (2)). Within the parameters of
                  the applications set forth above, prepayments shall be applied
                  first  to Base  Rate  Loans  and then to  Eurodollar  Loans in
                  direct order of Interest  Period  maturities.  All prepayments
                  under this Section 3.3(b) shall be subject to Section 3.12.

         3.4      Termination and Reduction of Revolving Committed Amount.

                  (a) Voluntary  Reductions.  The Borrower may from time to time
         permanently reduce or terminate the Revolving Committed Amount in whole
         or in part (in  minimum  aggregate  amounts of  $250,000 or in integral
         multiples of $50,000 in excess thereof (or, if less, the full remaining
         amount of the then applicable  Revolving  Committed  Amount)) upon five
         Business Days' prior written notice to the Agent; provided, however, no
         such  termination  or  reduction  shall be made which  would  cause the
         aggregate  principal  amount of  outstanding  Revolving  Loans plus LOC
         Obligations  outstanding  to exceed  the  Revolving  Committed  Amount,
         unless,  concurrently with such termination or reduction, the Revolving
         Loans are repaid to the extent necessary to eliminate such excess.  The
         Agent  shall  promptly  notify each  affected  Lender of receipt by the
         Agent of any notice from the Borrower pursuant to this Section 3.4(a).

                                       77

<PAGE>


                  (b) Mandatory Reductions. On any date that the Revolving Loans
         are required to be prepaid pursuant to the terms of Section  3.3(b)(ii)
         or  (iii),  the  Revolving  Committed  Amount  automatically  shall  be
         permanently  reduced by the amount of such required  prepayment  and/or
         reduction.

                  (c) Maturity Date.  The Revolving Commitments of the Lenders
         and the LOC Commitment of the Issuing Lender shall automatically
         terminate on the Maturity Date.

                  (d)  General.  The  Borrower  shall  pay to the  Agent for the
         account of the Lenders in accordance  with the terms of Section 3.5(a),
         on the date of each termination or reduction of the Revolving Committed
         Amount, the Commitment Fee accrued through the date of such termination
         or  reduction  on the  amount  of the  Revolving  Committed  Amount  so
         terminated or reduced.

         3.5      Fees.

                  (a)  Commitment  Fee.  In   consideration   of  the  Revolving
         Commitments of the Lenders hereunder, the Borrower agrees to pay to the
         Agent for the  account of each Lender a fee (the  "Commitment  Fee") on
         the unused portion of the Revolving  Committed Amount computed at a per
         annum  rate  for  each  day  during  the   applicable   Commitment  Fee
         Calculation  Period  (hereinafter  defined)  at a  rate  equal  to  the
         Applicable Margin in effect from time to time. The Commitment Fee shall
         commence to accrue on the Closing  Date and shall be due and payable in
         arrears on the last  business day of each March,  June,  September  and
         October (and any date that the Revolving Committed Amount is reduced as
         provided in Section 3.4(a) and the Maturity  Date) for the  immediately
         preceding  quarter (or portion  thereof)  (each such quarter or portion
         thereof for which the Commitment Fee is payable  hereunder being herein
         referred to as an "Commitment Fee Calculation Period"),  beginning with
         the first of such dates to occur after the Closing Date.

                  (b)      Letter of Credit Fees.

                                    (i) Standby  Letter of Credit  Issuance Fee.
                           In  consideration  of the issuance of standby Letters
                           of Credit hereunder,  the Borrower promises to pay to
                           the Agent for the  account of each  Lender a fee (the
                           "Standby  Letter  of  Credit  Fee") on such  Lender's
                           Revolving Commitment  Percentage of the average daily
                           maximum amount  available to be drawn under each such
                           standby Letter of Credit computed at a per annum rate
                           for each day from the date of issuance to the date of
                           expiration  equal  to  the  Applicable   Margin.  The
                           Standby   Letter  of  Credit   Fee  will  be  payable
                           quarterly in arrears on the last Business Day of each
                           March,   June,   September   and   October   for  the
                           immediately preceding quarter (or a portion thereof).

                                     78
<PAGE>


                                    (ii) Trade Letter of Credit  Drawing Fee. In
                           consideration  of the  issuance  of trade  Letters of
                           Credit hereunder, the Borrower promises to pay to the
                           Agent  for the  account  of each  Lender  a fee  (the
                           "Trade Letter of Credit Fee") equal to one quarter of
                           one  percent   (1/4%)  on  such  Lender's   Revolving
                           Commitment  Percentage  of the amount of each drawing
                           under  any such  trade  Letter of  Credit.  The Trade
                           Letter of Credit  Fee will be payable on each date of
                           drawing under a trade Letter of Credit.

                                    (iii)  Issuing  Lender Fees.  In addition to
                           the Standby Letter of Credit Fee payable  pursuant to
                           clause  (i) above and the Trade  Letter of Credit Fee
                           payable  pursuant to clause (ii) above,  the Borrower
                           promises  to pay to the  Issuing  Lender  for its own
                           account  without  sharing  by the other  Lenders  the
                           letter of credit fronting and negotiation fees agreed
                           to by the Borrower  and the Issuing  Lender from time
                           to time and the  customary  charges from time to time
                           of the Issuing  Lender with respect to the  issuance,
                           amendment, transfer, administration, cancellation and
                           conversion  of, and drawings  under,  such Letters of
                           Credit (collectively, the "Issuing Lender Fees").

                  (c)  Administrative  Fees.  The Borrower  agrees to pay to the
         Agent, for its own account, as applicable,  the fees referred to in the
         Agent's Fee Letter (collectively, the "Agent's Fees").

         3.6      Capital Adequacy.

         If any Lender has determined,  after the date hereof, that the adoption
or  the  becoming  effective  of,  or  any  change  in,  or  any  change  by any
Governmental  Authority,  central  bank or  comparable  agency  charged with the
interpretation or administration thereof in the interpretation or administration
of, any  applicable  law,  rule or regulation  regarding  capital  adequacy,  or
compliance  by such  Lender  with any  request or  directive  regarding  capital
adequacy (whether or not having the force of law) of any such authority, central
bank or comparable  agency, has or would have the effect of reducing the rate of
return on such Lender's capital or assets as a consequence of its commitments or
obligations  hereunder  to a level  below  that  which  such  Lender  could have
achieved but for such adoption, effectiveness, change or compliance (taking into
consideration  such Lender's policies with respect to capital  adequacy),  then,
upon notice from such Lender to the Borrower, the Borrower shall be obligated to
pay to such Lender such  additional  amount or amounts as will  compensate  such
Lender for such  reduction.  Each  determination  by any such  Lender of amounts
owing under this Section shall, absent manifest error, be conclusive and binding
on the parties hereto.

                                    79

<PAGE>


         3.7      Limitation on Eurodollar Loans.

         If on or  prior  to the  first  day  of any  Interest  Period  for  any
Eurodollar Loan:

                  (a)  the  Agent  determines  (which   determination  shall  be
         conclusive)  that by reason of  circumstances  affecting  the  relevant
         market, adequate and reasonable means do not exist for ascertaining the
         Eurodollar Rate for such Interest Period; or

                  (b) the Required Lenders determine (which  determination shall
         be conclusive)  and notify the Agent that the Eurodollar  Rate will not
         adequately  and  fairly  reflect  the cost to the  Lenders  of  funding
         Eurodollar Loans for such Interest Period;

then the Agent shall give the Borrower  prompt  notice  thereof,  and so long as
such  condition  remains in effect,  the Lenders shall be under no obligation to
make additional  Eurodollar Loans, Continue Eurodollar Loans, or to Convert Base
Rate Loans into  Eurodollar  Loans and the Borrower shall, on the last day(s) of
the then current Interest Period(s) for the outstanding Eurodollar Loans, either
prepay such  Eurodollar  Loans or Convert such  Eurodollar  Loans into Base Rate
Loans in accordance with the terms of this Credit Agreement.

         3.8      Illegality.

         Notwithstanding  any other provision of this Credit  Agreement,  in the
event that it becomes  unlawful for any Lender or its Applicable  Lending Office
to make,  maintain,  or fund Eurodollar Loans hereunder,  then such Lender shall
promptly  notify the Borrower  thereof and such  Lender's  obligation to make or
Continue  Eurodollar  Loans and to Convert Base Rate Loans into Eurodollar Loans
shall be suspended until such time as such Lender may again make, maintain,  and
fund  Eurodollar  Loans (in which case the  provisions  of Section 3.10 shall be
applicable).

         3.9      Requirements of Law.

         (a) If, after the date  hereof,  the  adoption of any  applicable  law,
rule, or regulation,  or any change in any applicable  law, rule, or regulation,
or  any  change  in  the   interpretation  or  administration   thereof  by  any
Governmental  Authority,  central bank, or  comparable  agency  charged with the
interpretation  or administration  thereof,  or compliance by any Lender (or its
Applicable  Lending Office) with any request or directive (whether or not having
the  force  of  law)  of any  such  Governmental  Authority,  central  bank,  or
comparable agency:

                                     80

<PAGE>


                        (i) shall subject such Lender (or its Applicable Lending
         Office)  to  any  tax,  duty,  or  other  charge  with  respect  to any
         Eurodollar  Loans,  its Notes,  or its  obligation  to make  Eurodollar
         Loans,  or change the basis of taxation of any amounts  payable to such
         Lender (or its Applicable  Lending Office) under this Credit  Agreement
         or its Notes in  respect  of any  Eurodollar  Loans  (other  than taxes
         imposed on the overall net income of such Lender by the jurisdiction in
         which such Lender has its principal  office or such Applicable  Lending
         Office);

                       (ii)  shall  impose,   modify,  or  deem  applicable  any
         reserve,  special deposit,  assessment,  or similar  requirement (other
         than the Eurodollar Reserve  Requirement  utilized in the determination
         of the Adjusted  Eurodollar  Rate) relating to any extensions of credit
         or other  assets  of,  or any  deposits  with or other  liabilities  or
         commitments  of,  such  Lender  (or  its  Applicable  Lending  Office),
         including the Commitment of such Lender hereunder; or

                      (iii)  shall  impose  on such  Lender  (or its  Applicable
         Lending  Office) or on the United  States  market for  certificates  of
         deposit or the London  interbank  market any other condition  affecting
         this Credit  Agreement or its Notes or any of such extensions of credit
         or liabilities or commitments;

and the result of any of the  foregoing  is to increase  the cost to such Lender
(or its Applicable Lending Office) of making,  Converting into,  Continuing,  or
maintaining any Eurodollar  Loans or to reduce any sum received or receivable by
such Lender (or its Applicable  Lending  Office) under this Credit  Agreement or
its Notes with respect to any Eurodollar  Loans,  then the Borrower shall pay to
such Lender on demand such amount or amounts as will  compensate such Lender for
such increased cost or reduction.  If any Lender  requests  compensation  by the
Borrower under this Section  3.9(a),  the Borrower may, by notice to such Lender
(with a copy to the  Agent),  suspend the  obligation  of such Lender to make or
Continue  Eurodollar Loans, or to Convert Base Rate Loans into Eurodollar Loans,
until the event or condition  giving rise to such request ceases to be in effect
(in which case the  provisions  of Section 3.10 shall be  applicable);  provided
that such  suspension  shall not affect the right of such  Lender to receive the
compensation so requested.

         (b) If, after the date hereof,  any Lender shall have  determined  that
the adoption of any  applicable  law,  rule,  or  regulation  regarding  capital
adequacy  or any  change  therein  or in the  interpretation  or  administration
thereof by any  Governmental  Authority,  central  bank,  or  comparable  agency
charged with the  interpretation  or administration  thereof,  or any request or
directive regarding capital adequacy (whether or not having the force of law) of
any such  Governmental  Authority,  central bank, or comparable  agency,  has or
would  have the  effect of  reducing  the rate of return on the  capital of such
Lender or any  corporation  controlling  such  Lender as a  consequence  of such
Lender's  obligations  hereunder to a level below that which such Lender or such
corporation  could have  achieved but for such  adoption,  change,  request,  or
directive  (taking  into  consideration  its  policies  with  respect to capital
adequacy),  then from time to time upon  demand the  Borrower  shall pay to such
Lender such additional amount or amounts as will compensate such Lender for such
reduction.

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<PAGE>


         (c) Each Lender shall promptly notify the Borrower and the Agent of any
event of which it has  knowledge,  occurring  after the date hereof,  which will
entitle  such  Lender to  compensation  pursuant  to this  Section  3.9 and will
designate a different  Applicable  Lending Office if such designation will avoid
the need for,  or reduce the amount of, such  compensation  and will not, in the
judgment of such Lender, be otherwise disadvantageous to it. Any Lender claiming
compensation  under  Section 3.6 or under this Section 3.9 shall  furnish to the
Borrower  and the  Agent a  statement  setting  forth the  additional  amount or
amounts to be paid to it hereunder  which shall be  conclusive in the absence of
manifest error. In determining  such amount,  such Lender may use any reasonable
averaging and attribution methods.

         3.10     Treatment of Affected Loans.

         If the  obligation  of any  Lender  to make any  Eurodollar  Loan or to
Continue,  or to  Convert  Base  Rate  Loans  into,  Eurodollar  Loans  shall be
suspended pursuant to Section 3.8 or 3.9 hereof,  such Lender's Eurodollar Loans
shall be automatically  Converted into Base Rate Loans on the last day(s) of the
then current Interest  Period(s) for such Eurodollar Loans (or, in the case of a
Conversion  required by Section 3.8 hereof,  on such earlier date as such Lender
may specify to the Borrower with a copy to the Agent) and, unless and until such
Lender  gives  notice as  provided  below that the  circumstances  specified  in
Section 3.8 or 3.9 hereof that gave rise to such Conversion no longer exist:

                  (a) to the extent  that such  Lender's  Eurodollar  Loans have
         been so Converted, all payments and prepayments of principal that would
         otherwise be applied to such Lender's Eurodollar Loans shall be applied
         instead to its Base Rate Loans; and

                  (b) all Loans that would  otherwise  be made or  Continued  by
         such Lender as Eurodollar  Loans shall be made or Continued  instead as
         Base Rate  Loans,  and all Base Rate  Loans of such  Lender  that would
         otherwise be Converted into Eurodollar  Loans shall remain as Base Rate
         Loans.

If such Lender gives notice to the Borrower  (with a copy to the Agent) that the
circumstances  specified  in  Section  3.8 or 3.9  hereof  that gave rise to the
Conversion of such Lender's  Eurodollar  Loans  pursuant to this Section 3.10 no
longer exist (which such Lender  agrees to do promptly  upon such  circumstances
ceasing  to exist) at a time when  Eurodollar  Loans made by other  Lenders  are
outstanding,  such Lender's Base Rate Loans shall be automatically Converted, on
the first day(s) of the next succeeding  Interest Period(s) for such outstanding
Eurodollar  Loans, to the extent necessary so that, after giving effect thereto,
all Loans held by the Lenders  holding  Eurodollar  Loans and by such Lender are
held pro rata (as to  principal  amounts,  interest  rate  basis,  and  Interest
Periods) in accordance with their respective Commitments.

                                    82

<PAGE>


         3.11     Taxes.

                  (a) Any and all payments by the Borrower to or for the account
         of any Lender or the Agent hereunder or under any other Credit Document
         shall be made free and clear of and without  deduction  for any and all
         present or future taxes, duties, levies, imposts,  deductions,  charges
         or withholdings,  and all liabilities with respect thereto,  excluding,
         in the case of each Lender and the Agent,  taxes imposed on its income,
         and franchise taxes imposed on it, by the  jurisdiction  under the laws
         of which such Lender (or its  Applicable  Lending  Office) or the Agent
         (as the case may be) is organized or any political  subdivision thereof
         (all such non-excluded  taxes,  duties,  levies,  imposts,  deductions,
         charges, withholdings, and liabilities being hereinafter referred to as
         "Taxes").  If the Borrower shall be required by law to deduct any Taxes
         from or in respect of any sum payable  under this Credit  Agreement  or
         any other  Credit  Document  to any  Lender or the  Agent,  (i) the sum
         payable  shall be  increased  as  necessary  so that  after  making all
         required deductions (including deductions applicable to additional sums
         payable under this Section  3.11) such Lender or the Agent  receives an
         amount equal to the sum it would have  received had no such  deductions
         been made,  (ii) the  Borrower  shall make such  deductions,  (iii) the
         Borrower  shall pay the full amount  deducted to the relevant  taxation
         authority or other  authority in accordance  with  applicable  law, and
         (iv) the Borrower shall furnish to the Agent,  at its address  referred
         to in Section  11.1,  the  original  or a  certified  copy of a receipt
         evidencing payment thereof.

                  (b) In  addition,  the  Borrower  agrees  to pay  any  and all
         present or future  stamp or  documentary  taxes and any other excise or
         property  taxes or  charges  or  similar  levies  which  arise from any
         payment made under this Credit  Agreement or any other Credit  Document
         or from the  execution or delivery  of, or  otherwise  with respect to,
         this  Credit  Agreement  or  any  other  Credit  Document  (hereinafter
         referred to as "Other Taxes").

                  (c) The Borrower agrees to indemnify each Lender and the Agent
         for the full  amount  of Taxes  and  Other  Taxes  (including,  without
         limitation,  any  Taxes or  Other  Taxes  imposed  or  asserted  by any
         jurisdiction  on amounts  payable under this Section 3.11) paid by such
         Lender or the Agent (as the case may be) and any  liability  (including
         penalties,  interest,  and expenses)  arising therefrom or with respect
         thereto.

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<PAGE>


                  (d) Each  Lender  organized  under the laws of a  jurisdiction
         outside the United States, on or prior to the date of its execution and
         delivery of this Credit  Agreement in the case of each Lender listed on
         the  signature  pages  hereof  and on or  prior to the date on which it
         becomes a Lender  in the case of each  other  Lender,  and from time to
         time  thereafter  if  requested in writing by the Borrower or the Agent
         (but only so long as such Lender remains lawfully able to do so), shall
         provide the Borrower and the Agent with (i)  Internal  Revenue  Service
         Form 1001 or 4224, as appropriate,  or any successor form prescribed by
         the Internal Revenue  Service,  certifying that such Lender is entitled
         to benefits  under an income tax treaty to which the United States is a
         party which reduces the rate of withholding tax on payments of interest
         or  certifying  that the  income  receivable  pursuant  to this  Credit
         Agreement  is  effectively  connected  with the  conduct  of a trade or
         business in the United States,  (ii) Internal  Revenue Service Form W-8
         or  W-9,  as  appropriate,  or any  successor  form  prescribed  by the
         Internal  Revenue  Service,  and (iii) any  other  form or  certificate
         required by any taxing authority (including any certificate required by
         Sections  871(h) and 881(c) of the Internal  Revenue Code),  certifying
         that such Lender is entitled to an exemption  from or a reduced rate of
         tax on payments  pursuant to this Credit  Agreement or any of the other
         Credit Documents.

                  (e) For any period  with  respect to which a Lender has failed
         to  provide  the  Borrower  and the  Agent  with the  appropriate  form
         pursuant to Section  3.11(d) (unless such failure is due to a change in
         treaty, law, or regulation  occurring subsequent to the date on which a
         form originally was required to be provided),  such Lender shall not be
         entitled  to  indemnification  under  Section  3.11(a) or 3.11(b)  with
         respect to Taxes imposed by the United States; provided,  however, that
         should a Lender, which is otherwise exempt from or subject to a reduced
         rate of withholding tax, become subject to Taxes because of its failure
         to deliver a form  required  hereunder,  the  Borrower  shall take such
         steps as such Lender shall reasonably  request to assist such Lender to
         recover such Taxes.

                  (f) If the Borrower is required to pay  additional  amounts to
         or for the account of any Lender  pursuant to this Section  3.11,  then
         such  Lender  will  agree  to use  reasonable  efforts  to  change  the
         jurisdiction  of its  Applicable  Lending  Office so as to eliminate or
         reduce any such additional  payment which may thereafter accrue if such
         change,   in  the   judgment   of  such   Lender,   is  not   otherwise
         disadvantageous to such Lender.

                  (g) Within  thirty  (30) days after the date of any payment of
         Taxes,  the  Borrower  shall  furnish  to the Agent the  original  or a
         certified copy of a receipt evidencing such payment.

                  (h) Without  prejudice to the survival of any other  agreement
         of the  Borrower  hereunder,  the  agreements  and  obligations  of the
         Borrower  contained in this Section 3.11 shall survive the repayment of
         the  Loans,  LOC  Obligations  and other  obligations  under the Credit
         Documents and the termination of the Commitments hereunder.

         3.12     Compensation.

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<PAGE>


         Upon the  request of the  Agent,  on behalf of a Lender,  the  Borrower
shall pay to such Lender such amount or amounts as shall be  sufficient  (in the
reasonable  opinion of such  Lender) to  compensate  it for any loss,  cost,  or
expense (including loss of anticipated profits) incurred by it as a result of:

                  (a) any payment,  prepayment,  or  Conversion  of a Eurodollar
         Loan for any reason (including, without limitation, the acceleration of
         the Loans pursuant to Section 9.2) on a date other than the last day of
         the Interest Period for such Loan; or

                  (b) any  failure by the  Borrower  for any reason  (including,
         without limitation, the failure of any condition precedent specified in
         Section 5 to be satisfied) to borrow,  Convert,  Continue,  or prepay a
         Eurodollar   Loan  on  the  date  for   such   borrowing,   Conversion,
         Continuation,  or  prepayment  specified  in  the  relevant  notice  of
         borrowing,  prepayment,  Continuation,  or Conversion under this Credit
         Agreement.

With respect to Eurodollar  Loans,  such  indemnification  may include an amount
equal to the  excess,  if any,  of (a) the amount of  interest  which would have
accrued on the amount so prepaid,  or not so borrowed,  converted or  continued,
for the period from the date of such  prepayment  or of such  failure to borrow,
convert or continue to the last day of the  applicable  Interest  Period (or, in
the case of a failure to borrow,  convert or continue,  the Interest Period that
would have commenced on the date of such failure) in each case at the applicable
rate of interest  for such  Eurodollar  Loans  provided  for herein  (excluding,
however,  the Applicable Margin included therein, if any) over (b) the amount of
interest (as  reasonably  determined by such Lender) which would have accrued to
such  Lender on such amount by placing  such amount on deposit for a  comparable
period with leading banks in the interbank  Eurodollar  market. The covenants of
the Borrower set forth in this Section 3.12 shall  survive the  repayment of the
Loans, LOC Obligations and other  obligations under the Credit Documents and the
termination of the Commitments hereunder.

         3.13     Pro Rata Treatment.

         Except to the extent otherwise provided herein:

                  (a) Loans. Each Loan, each payment or (subject to the terms of
         Section  3.3)  prepayment  of  principal  of any Loan or  reimbursement
         obligations arising from drawings under Letters of Credit, each payment
         of  interest on the Loans or  reimbursement  obligations  arising  from
         drawings under Letters of Credit, each payment of Commitment Fees, each
         payment of the Standby  Letter of Credit Fee, each payment of the Trade
         Letter of Credit Fee, each reduction of the Revolving  Committed Amount
         and each  conversion  or extension of any Loan,  shall be allocated pro
         rata among the  Lenders in  accordance  with the  respective  principal
         amounts of their outstanding Loans and Participation Interests.


                                       85
<PAGE>


                           Advances.  No  Lender  shall be  responsible  for the
         failure  or delay by any  other  Lender in its  obligation  to make its
         ratable share of a borrowing  hereunder;  provided,  however,  that the
         failure of any Lender to fulfill its  obligations  hereunder  shall not
         relieve any other Lender of its obligations hereunder. Unless the Agent
         shall have been  notified  by any  Lender in writing  not less than the
         earlier to occur of one  Business  Day or 24 hours prior to the date of
         any  requested  borrowing  that  such  Lender  does not  intend to make
         available to the Agent its ratable  share of such  borrowing to be made
         on such  date,  the Agent may  assume  that such  Lender  has made such
         amount  available to the Agent on the date of such  borrowing,  and the
         Agent in reliance upon such assumption, may (in its sole discretion but
         without  any  obligation  to do so) make  available  to the  Borrower a
         corresponding  amount. If such corresponding amount is not in fact made
         available  to the  Agent,  the  Agent  shall  be able to  recover  such
         corresponding amount from such Lender with interest at a rate per annum
         equal to the  Federal  Funds  Rate.  If such  Lender  does not pay such
         corresponding  amount forthwith upon the Agent's demand  therefor,  the
         Agent  will  promptly  notify  the  Borrower,  and the  Borrower  shall
         immediately pay such corresponding amount to the Agent. The Agent shall
         also be entitled  to recover  from the Lender or the  Borrower,  as the
         case may be, interest on such  corresponding  amount in respect of each
         day from the date such  corresponding  amount was made available by the
         Agent  to the  Borrower  to  the  date  such  corresponding  amount  is
         recovered  by the  Agent  at a per  annum  rate  equal  to (i) from the
         Borrower at the applicable rate for the applicable  borrowing  pursuant
         to the Notice of Borrowing  and (ii) from a Lender at the Federal Funds
         Rate.

         3.14     Sharing of Payments.

                                       86

<PAGE>


         The Lenders agree among  themselves  that, in the event that any Lender
shall  obtain  payment  in  respect of any Loan,  LOC  Obligations  or any other
obligation owing to such Lender under this Credit Agreement through the exercise
of a right of setoff,  banker's lien or  counterclaim,  or pursuant to a secured
claim under Section 506 of Title 11 of the United States Code or other  security
or interest  arising from, or in lieu of, such secured  claim,  received by such
Lender  under any  applicable  bankruptcy,  insolvency  or other  similar law or
otherwise,  or by any  other  means,  in  excess  of its pro rata  share of such
payment as provided for in this Credit  Agreement,  such Lender  shall  promptly
purchase  from the other  Lenders a  Participation  Interest in such Loans,  LOC
Obligations  and  other  obligations  in  such  amounts,  and  make  such  other
adjustments from time to time, as shall be equitable to the end that all Lenders
share  such  payment  in  accordance  with their  respective  ratable  shares as
provided  for  in  this  Credit  Agreement.  The  Lenders  further  agree  among
themselves  that if payment to a Lender  obtained  by such  Lender  through  the
exercise of a right of setoff,  banker's  lien,  counterclaim  or other event as
aforesaid  shall be rescinded or must  otherwise be restored,  each Lender which
shall have  shared  the  benefit  of such  payment  shall,  by  repurchase  of a
Participation  Interest  theretofore  sold,  return  its  share of that  benefit
(together with its share of any accrued  interest  payable with respect thereto)
to each Lender whose  payment shall have been  rescinded or otherwise  restored.
The Borrower agrees that any Lender so purchasing such a Participation  Interest
may, to the fullest  extent  permitted  by law,  exercise all rights of payment,
including  setoff,   banker's  lien  or  counterclaim,   with  respect  to  such
Participation  Interest  as fully as if such  Lender were a holder of such Loan,
LOC  Obligations  or  other  obligation  in the  amount  of  such  Participation
Interest.  Except as otherwise  expressly provided in this Credit Agreement,  if
any Lender or the Agent shall fail to remit to the Agent or any other  Lender an
amount  payable by such  Lender or the Agent to the Agent or such  other  Lender
pursuant to this  Credit  Agreement  on the date when such  amount is due,  such
payments  shall be made together  with  interest  thereon for each date from the
date such  amount is due until the date such amount is paid to the Agent or such
other Lender at a rate per annum equal to the Federal  Funds Rate.  If under any
applicable  bankruptcy,  insolvency or other similar law, any Lender  receives a
secured  claim in lieu of a setoff to which  this  Section  3.14  applies,  such
Lender shall, to the extent practicable,  exercise its rights in respect of such
secured claim in a manner  consistent  with the rights of the Lenders under this
Section 3.14 to share in the benefits of any recovery on such secured claim.

         3.15     Payments, Computations, Etc.

                  (a) Except as  otherwise  specifically  provided  herein,  all
         payments hereunder shall be made to the Agent in dollars in immediately
         available funds, without offset, deduction, counterclaim or withholding
         of any kind,  at the Agent's  office  specified in Schedule  2.1(a) not
         later than 4:00 P.M. (Charlotte,  North Carolina time) on the date when
         due.  Payments  received  after  such time shall be deemed to have been
         received on the next succeeding  Business Day. The Agent may (but shall
         not be obligated  to) debit the amount of any such payment which is not
         made by such  time to any  ordinary  deposit  account  of the  Borrower
         maintained  with the Agent (with notice to the Borrower).  The Borrower
         shall,  at the time it makes any payment  under this Credit  Agreement,
         specify to the Agent the Loans,  LOC  Obligations,  Fees,  interest  or
         other amounts  payable by the Borrower  hereunder to which such payment
         is to be applied  (and in the event that it fails so to specify,  or if
         such application would be inconsistent with the terms hereof, the Agent
         shall  distribute  such  payment to the  Lenders in such  manner as the
         Agent may determine to be appropriate  in respect of obligations  owing
         by the Borrower  hereunder,  subject to the terms of Section  3.13(a)).
         The Agent will  distribute  such payments to such Lenders,  if any such
         payment is  received  prior to 12:00 Noon  (Charlotte,  North  Carolina
         time) on a Business  Day in like funds as received  prior to the end of
         such Business Day and otherwise the Agent will  distribute such payment
         to such  Lenders on the next  succeeding  Business  Day.  Whenever  any
         payment  hereunder  shall be  stated  to be due on a day which is not a
         Business  Day,  the due  date  thereof  shall be  extended  to the next
         succeeding  Business  Day  (subject to accrual of interest and Fees for
         the period of such  extension),  except that in the case of  Eurodollar
         Loans,  if the extension would cause the payment to be made in the next
         following  calendar  month,  then such payment shall instead be made on
         the next preceding Business Day. Except as expressly provided otherwise
         herein,  all  computations  of  interest  and fees shall be made on the
         basis of actual number of days elapsed over a year of 360 days,  except
         with  respect to  computation  of  interest  on Base Rate  Loans  which
         (unless the Base Rate is  determined b reference  to the Federal  Funds
         Rate)  shall  be  calculated  based  on a year of 365 or 366  days,  as
         appropriate.  Interest  shall  accrue  from  and  include  the  date of
         borrowing, but exclude the date of payment.

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                  (b)   Allocation   of   Payments   After   Event  of  Default.
         Notwithstanding  any other  provisions of this Credit  Agreement to the
         contrary,  after the occurrence and during the  continuance of an Event
         of  Default,  all  amounts  collected  or  received by the Agent or any
         Lender on account of the Credit Party  Obligations or any other amounts
         outstanding  under any of the  Credit  Documents  or in  respect of the
         Collateral shall be paid over or delivered as follows:

                  FIRST,  to the payment of all reasonable  out-of-pocket  costs
         and expenses (including without limitation  reasonable attorneys' fees)
         of the Agent in  connection  with  enforcing  the rights of the Lenders
         under the Credit  Documents  and any  protective  advances  made by the
         Agent with respect to the Collateral  under or pursuant to the terms of
         the Collateral Documents;

                  SECOND, to payment of any fees owed to the Agent;

                  THIRD,  to the payment of all reasonable  out-of-pocket  costs
         and expenses (including without limitation, reasonable attorneys' fees)
         of each of the Lenders in  connection  with  enforcing its rights under
         the Credit  Documents  or  otherwise  with  respect to the Credit Party
         Obligations owing to such Lender;

                  FOURTH, to the payment of all of the Credit Party Obligations
         consisting of accrued fees and interest;

                  FIFTH, to the payment of the outstanding  principal  amount of
         the  Credit   Party   Obligations   (including   the  payment  or  cash
         collateralization of the outstanding LOC Obligations);

                  SIXTH,  to  all  other  Credit  Party  Obligations  and  other
         obligations  which shall have  become due and payable  under the Credit
         Documents  or  otherwise  and not repaid  pursuant  to clauses  "FIRST"
         through "FIFTH" above; and

                  SEVENTH, to the payment of the surplus, if any, to whoever may
         be lawfully entitled to receive such surplus.

         In carrying out the foregoing, (i) amounts received shall be applied in
         the numerical  order provided until  exhausted  prior to application to
         the next succeeding category; (ii) each of the Lenders shall receive an
         amount  equal to its pro rata share (based on the  proportion  that the
         then outstanding Loans and LOC Obligations held by such Lender bears to
         the aggregate then  outstanding  Loans and LOC  Obligations) of amounts
         available to be applied pursuant to clauses "THIRD",  "FOURTH", "FIFTH"
         and "SIXTH" above;  and (iii) to the extent that any amounts  available
         for  distribution  pursuant to clause "FIFTH" above are attributable to
         the issued but undrawn  amount of outstanding  Letters of Credit,  such
         amounts  shall be held by the Agent in a cash  collateral  account  and
         applied (A) first,  to reimburse  the Issuing  Lender from time to time
         for any drawings  under such Letters of Credit and (B) then,  following
         the  expiration of all Letters of Credit,  to all other  obligations of
         the types  described in clauses "FIFTH" and "SIXTH" above in the manner
         provided in this Section 3.15(b).

                                       88
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         3.16     Evidence of Debt.

                  (a)  Each  Lender  shall   maintain  an  account  or  accounts
         evidencing  each Loan made by such Lender to the Borrower  from time to
         time,  including the amounts of principal and interest payable and paid
         to such  Lender  from time to time under this  Credit  Agreement.  Each
         Lender will make  reasonable  efforts to maintain  the  accuracy of its
         account or accounts and to promptly update its account or accounts from
         time to time, as necessary.

                  (b) The Agent shall maintain the Register  pursuant to Section
         11.3(c),  and a  subaccount  for each  Lender,  in which  Register  and
         subaccounts (taken together) shall be recorded (i) the amount, type and
         Interest  Period of each such Loan  hereunder,  (ii) the  amount of any
         principal  or interest  due and payable or to become due and payable to
         each Lender  hereunder  and (iii) the amount of any sum received by the
         Agent  hereunder  from or for the  account  of the  Borrower  and  each
         Lender's  share  thereof.  The Agent  will make  reasonable  efforts to
         maintain the accuracy of the  subaccounts  referred to in the preceding
         sentence and to promptly update such  subaccounts from time to time, as
         necessary.

                  (c) The entries made in the accounts, Register and subaccounts
         maintained  pursuant to  subsection  (b) of this Section 3.16 (and,  if
         consistent  with the  entries  of the Agent,  subsection  (a)) shall be
         prima facie evidence of the existence and amounts of the obligations of
         the Borrower therein recorded;  provided,  however, that the failure of
         any Lender or the Agent to maintain any such account,  such Register or
         such subaccount,  as applicable, or any error therein, shall not in any
         manner affect the obligation of the Borrower to repay the Loans made by
         such Lender in accordance with the terms hereof.

         3.17     Replacement Lenders.


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         If any Lender either (i) becomes a Defaulting Lender or (ii) delivers a
notice pursuant to Sections 3.6, 3.9 or 3.11, the Borrower shall have the right,
if no Default or Event of Default  then  exists,  to replace  such  Lender  (the
"Replaced  Lender") with one or more assignees  eligible  under Section  11.3(b)
hereof (collectively,  the "Replacement Lender"),  provided that (A) at the time
of any replacement  pursuant to this Section, the Replacement Lender shall enter
into one or more  assignment  agreements  substantially  in the form of  Exhibit
11.3(b)  pursuant  to,  and in  accordance  with the terms of,  Section  11.3(b)
pursuant to which the  Replacement  Lender  shall  acquire all of the rights and
obligations of the Replaced Lender hereunder and, in connection therewith, shall
pay to (1) the Replaced  Lender in respect thereof of an amount equal to the sum
of (x) the principal of, and all accrued  interest on, all outstanding  Loans of
the Replaced Lender,  (y) all unreimbursed  drawings under the Letters of Credit
that have been  funded by the  Replaced  Lender,  together  with all then unpaid
interest with respect  thereto at such time and (z) all accrued but  theretofore
unpaid,  fees and other amounts owing to the Replaced Lender pursuant to Section
3.5 and (2) each  Issuing  Lender  an  amount  equal to such  Replaced  Lender's
Revolving  Commitment  Percentage of any unreimbursed  drawings under Letters of
Credit  issued  by  such  Issuing  Lender  to the  extent  such  amount  was not
heretofore  funded by Replaced  Lender,  and (B) all obligations of the Borrower
owing to the Replaced Lender (including all obligations,  if any, owing pursuant
to Section  3.6,  3.9 or 3.11,  but  excluding  those  obligations  specifically
described in clause (A) above in respect of which the assignment  purchase price
has been, or is  concurrently  being paid) shall be paid in full by the Borrower
to such Replaced Lender concurrently with such replacement.


                                    SECTION 4

                                    GUARANTY

         4.1      The Guaranty.

         Each of the Guarantors hereby jointly and severally  guarantees to each
Lender, each Affiliate of a Lender that enters into a Hedging Agreement, and the
Agent as hereinafter provided the prompt payment of the Credit Party Obligations
in full when due  (whether at stated  maturity,  as a mandatory  prepayment,  by
acceleration,  as a mandatory cash  collateralization  or otherwise) strictly in
accordance with the terms thereof.  The Guarantors  hereby further agree that if
any of the Credit  Party  Obligations  are not paid in full when due (whether at
stated maturity, as a mandatory prepayment, by acceleration, as a mandatory cash
collateralization  or otherwise),  the Guarantors  will,  jointly and severally,
promptly pay the same, without any demand or notice whatsoever,  and that in the
case of any  extension  of time of payment or renewal of any of the Credit Party
Obligations,  the  same  will be  promptly  paid in full  when due  (whether  at
extended maturity,  as a mandatory prepayment,  by acceleration,  as a mandatory
cash  collateralization  or  otherwise)  in  accordance  with the  terms of such
extension or renewal.

         Notwithstanding  any provision to the contrary  contained  herein or in
any other of the Credit Documents or Hedging Agreements, the obligations of each
Guarantor hereunder shall be limited to an aggregate amount equal to the largest
amount  that would not render its  obligations  hereunder  subject to  avoidance
under Section 548 of the  Bankruptcy  Code or any  comparable  provisions of any
applicable state law.

         4.2      Obligations Unconditional.

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<PAGE>


         The  obligations  of the  Guarantors  under  Section  4.1 are joint and
several,  absolute and  unconditional,  irrespective of the value,  genuineness,
validity, regularity or enforceability of any of the Credit Documents or Hedging
Agreements,  or any other  agreement or instrument  referred to therein,  or any
substitution,  release,  impairment  or  exchange of any other  guarantee  of or
security for any of the Credit  Party  Obligations,  and, to the fullest  extent
permitted by applicable law,  irrespective of any other circumstance  whatsoever
which might otherwise  constitute a legal or equitable discharge or defense of a
surety  or  guarantor,  it  being  the  intent  of this  Section  4.2  that  the
obligations  of the  Guarantors  hereunder  shall be absolute and  unconditional
under any and all circumstances. Each Guarantor agrees that such Guarantor shall
have no right of subrogation,  indemnity,  reimbursement or contribution against
the Borrower or any other Guarantor of the Credit Party  Obligations for amounts
paid under this Section 4 until such time as the Lenders (and any  Affiliates of
Lenders  entering  into  Hedging   Agreements)  have  been  paid  in  full,  all
Commitments  under this Credit  Agreement have been  terminated and no Person or
Governmental   Authority   shall  have  any  right  to  request  any  return  or
reimbursement of funds from the Lenders in connection with monies received under
the Credit Documents or Hedging  Agreements.  Without limiting the generality of
the foregoing,  it is agreed that, to the fullest  extent  permitted by law, the
occurrence  of any one or more of the  following  shall not alter or impair  the
liability  of  any  Guarantor   hereunder   which  shall  remain   absolute  and
unconditional as described above:

                  (a) at any time or from  time to time,  without  notice to any
         Guarantor,  the time for any  performance of or compliance  with any of
         the Credit Party Obligations shall be extended,  or such performance or
         compliance shall be waived;

                  (b) any of the acts  mentioned in any of the provisions of any
         of the Credit  Documents,  any Hedging Agreement or any other agreement
         or instrument referred to in the Credit Documents or Hedging Agreements
         shall be done or omitted;

                  (c) the maturity of any of the Credit Party  Obligations shall
         be  accelerated,  or any of  the  Credit  Party  Obligations  shall  be
         modified,  supplemented  or amended in any respect,  or any right under
         any of  the  Credit  Documents,  any  Hedging  Agreement  or any  other
         agreement or instrument  referred to in the Credit Documents or Hedging
         Agreements  shall be waived or any other guarantee of any of the Credit
         Party Obligations or any security therefor shall be released,  impaired
         or exchanged in whole or in part or otherwise dealt with;

                  (d) any Lien  granted  to,  or in favor  of,  the Agent or any
         Lender or Lenders as security for any of the Credit  Party  Obligations
         shall fail to attach or be perfected; or

                  (e) any of the Credit Party Obligations shall be determined to
         be void or voidable (including,  without limitation, for the benefit of
         any creditor of any Guarantor) or shall be  subordinated  to the claims
         of any Person  (including,  without  limitation,  any  creditor  of any
         Guarantor).

With respect to its  obligations  hereunder,  each  Guarantor  hereby  expressly
waives  diligence,  presentment,  demand of  payment,  protest  and all  notices
whatsoever,  and any requirement that the Agent or any Lender exhaust any right,
power or remedy or proceed against any Person under any of the Credit Documents,
any Hedging  Agreement or any other  agreement or instrument  referred to in the
Credit  Documents or Hedging  Agreements,  or against any other Person under any
other guarantee of, or security for, any of the Credit Party Obligations.

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<PAGE>


         4.3      Reinstatement.

         The  obligations  of the  Guarantors  under  this  Section  4 shall  be
automatically reinstated if and to the extent that for any reason any payment by
or on behalf  of any  Person in  respect  of the  Credit  Party  Obligations  is
rescinded or must be otherwise restored by any holder of any of the Credit Party
Obligations,   whether  as  a  result  of  any   proceedings  in  bankruptcy  or
reorganization  or otherwise,  and each Guarantor  agrees that it will indemnify
the  Agent  and each  Lender on demand  for all  reasonable  costs and  expenses
(including,  without  limitation,  fees and expenses of counsel) incurred by the
Agent  or such  Lender  in  connection  with  such  rescission  or  restoration,
including  any such costs and expenses  incurred in defending  against any claim
alleging  that such payment  constituted a  preference,  fraudulent  transfer or
similar payment under any bankruptcy, insolvency or similar law.

         4.4      Certain Additional Waivers.

         Without  limiting the  generality of the  provisions of this Section 4,
each Guarantor hereby specifically waives the benefits of N.C. Gen. Stat. ss.ss.
26-7 through 26-9, inclusive,  to the extent applicable.  Each Guarantor further
agrees that such  Guarantor  shall have no right of recourse to security for the
Credit Party  Obligations,  except through the exercise of rights of subrogation
pursuant  to Section 4.2 and  through  the  exercise  of rights of  contribution
pursuant to Section 4.6.

         4.5      Remedies.

         The Guarantors  agree that, to the fullest extent  permitted by law, as
between the Guarantors,  on the one hand, and the Agent and the Lenders,  on the
other hand, the Credit Party Obligations may be declared to be forthwith due and
payable  as  provided  in  Section  9.2 (and  shall  be  deemed  to have  become
automatically due and payable in the circumstances provided in said Section 9.2)
for  purposes  of Section  4.1  notwithstanding  any stay,  injunction  or other
prohibition   preventing  such  declaration  (or  preventing  the  Credit  Party
Obligations  from becoming  automatically  due and payable) as against any other
Person  and  that,  in the  event  of  such  declaration  (or the  Credit  Party
Obligations  being deemed to have become  automatically  due and  payable),  the
Credit Party  Obligations  (whether or not due and payable by any other  Person)
shall forthwith become due and payable by the Guarantors for purposes of Section
4.1. The Guarantors  acknowledge and agree that their obligations  hereunder are
secured in accordance  with the terms of the Security  Agreements  and the other
Collateral Documents and that the Lenders may exercise their remedies thereunder
in accordance with the terms thereof.

         4.6      Rights of Contribution.

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<PAGE>


         The Guarantors  hereby agree as among themselves that, if any Guarantor
shall make an Excess Payment (as defined  below),  such  Guarantor  shall have a
right of contribution from each other Guarantor in an amount equal to such other
Guarantor's  Contribution  Share (as defined below) of such Excess Payment.  The
payment obligations of any Guarantor under this Section 4.6 shall be subordinate
and  subject in right of  payment to the prior  payment in full to the Agent and
the Lenders of the  Guaranteed  Obligations,  and none of the  Guarantors  shall
exercise any right or remedy under this Section 4.6 against any other  Guarantor
until payment and  satisfaction in full of all of such  Guaranteed  Obligations.
For purposes of this Section 4.6, (a)  "Guaranteed  Obligations"  shall mean any
obligations  arising  under the other  provisions of this Section 4; (b) "Excess
Payment"  shall mean the amount paid by any  Guarantor in excess of its Pro Rata
Share of any  Guaranteed  Obligations;  (c) "Pro Rata Share" shall mean, for any
Guarantor  in  respect  of any  payment  of  Guaranteed  Obligations,  the ratio
(expressed  as a  percentage)  as of the  date of  such  payment  of  Guaranteed
Obligations of (i) the amount by which the aggregate  present fair salable value
of all of its  assets  and  properties  exceeds  the  amount  of all  debts  and
liabilities of such Guarantor (including  contingent,  subordinated,  unmatured,
and  unliquidated  liabilities,  but excluding the obligations of such Guarantor
hereunder) to (ii) the amount by which the aggregate  present fair salable value
of all assets and other  properties  of the Borrower  and all of the  Guarantors
exceeds the amount of all of the debts and  liabilities  (including  contingent,
subordinated,   unmatured,  and  unliquidated  liabilities,  but  excluding  the
obligations  of the Borrower and the  Guarantors  hereunder) of the Borrower and
all of the Guarantors;  provided, however, that, for purposes of calculating the
Pro Rata  Shares of the  Guarantors  in  respect of any  payment  of  Guaranteed
Obligations, any Guarantor that became a Guarantor subsequent to the date of any
such  payment  shall be  deemed  to have  been a  Guarantor  on the date of such
payment and the  financial  information  for such  Guarantor as of the date such
Guarantor  became a Guarantor shall be utilized for such Guarantor in connection
with such payment; and (d) "Contribution Share" shall mean, for any Guarantor in
respect of any Excess Payment made by any other Guarantor,  the ratio (expressed
as a  percentage)  as of the date of such  Excess  Payment  of (i) the amount by
which  the  aggregate  present  fair  salable  value  of all of its  assets  and
properties  exceeds the amount of all debts and  liabilities  of such  Guarantor
(including contingent,  subordinated,  unmatured, and unliquidated  liabilities,
but excluding the obligations of such Guarantor hereunder) to (ii) the amount by
which  the  aggregate  present  fair  salable  value  of all  assets  and  other
properties  of the  Borrower and all of the  Guarantors  other than the maker of
such  Excess  Payment  exceeds  the  amount of all of the debts and  liabilities
(including contingent,  subordinated,  unmatured, and unliquidated  liabilities,
but excluding the  obligations of the Borrower and the Guarantors  hereunder) of
the  Borrower  and all of the  Guarantors  other  than the maker of such  Excess
Payment;  provided,  however, that, for purposes of calculating the Contribution
Shares of the  Guarantors in respect of any Excess  Payment,  any Guarantor that
became a Guarantor  subsequent  to the date of any such Excess  Payment shall be
deemed to have  been a  Guarantor  on the date of such  Excess  Payment  and the
financial  information for such Guarantor as of the date such Guarantor became a
Guarantor  shall be utilized for such  Guarantor in connection  with such Excess
Payment.  This  Section  4.6  shall  not  be  deemed  to  affect  any  right  of
subrogation,  indemnity,  reimbursement  or contribution  that any Guarantor may
have under  applicable  law  against  the  Borrower in respect of any payment of
Guaranteed   Obligations.   Notwithstanding   the   foregoing,   all  rights  of
contribution  against any Guarantor shall terminate from and after such time, if
ever,  that such  Guarantor  shall be  relieved of its  obligations  pursuant to
Section 8.4.

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<PAGE>


         4.7      Continuing Guarantee.

         The  guarantee in this Section 4 is a continuing  guarantee,  and shall
apply to all Credit Party Obligations whenever arising.


                                    SECTION 5

                                   CONDITIONS

         5.1      Closing Conditions.

         The  obligation of the Lenders to enter into this Credit  Agreement and
to make the initial Loans or the Issuing  Lender to issue the initial  Letter of
Credit,  whichever  shall occur first,  shall be subject to  satisfaction of the
following conditions (in form and substance acceptable to the Lenders):

                  (a) Executed  Credit  Documents.  Receipt by the Agent of duly
         executed copies of: (i) this Credit  Agreement;  (ii) the Notes;  (iii)
         the Collateral  Documents and (iv) all other Credit Documents,  each in
         form and substance acceptable to the Lenders in their sole discretion.

                  (b) Corporate Documents.  Receipt by the Agent of the
         following:

                           (i)  Charter  Documents.  Copies of the  articles  or
                  certificates of  incorporation  or other charter  documents of
                  each Credit  Party  certified  to be true and complete as of a
                  recent date by the appropriate  Governmental  Authority of the
                  state or other jurisdiction of its incorporation and certified
                  by a secretary or assistant  secretary of such Credit Party to
                  be true and correct as of the Closing Date.

                           (ii)  Bylaws.  A copy of the  bylaws  of each  Credit
                  Party certified by a secretary or assistant  secretary of such
                  Credit Party to be true and correct as of the Closing Date.

                           (iii) Resolutions. Copies of resolutions of the Board
                  of Directors of each Credit Party  approving  and adopting the
                  Credit  Documents  to which it is a  party,  the  transactions
                  contemplated  therein and  authorizing  execution and delivery
                  thereof,  certified by a secretary  or assistant  secretary of
                  such  Credit  Party to be true and  correct  and in force  and
                  effect as of the Closing Date.

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<PAGE>


                           (iv) Good  Standing.  Copies of (A)  certificates  of
                  good  standing,  existence or its  equivalent  with respect to
                  each  Credit  Party  certified  as of a  recent  date  by  the
                  appropriate  Governmental  Authorities  of the  state or other
                  jurisdiction of incorporation  and each other  jurisdiction in
                  which the failure to so qualify and be in good standing  could
                  have  a  Material   Adverse  Effect  and  (B)  to  the  extent
                  available,  a certificate  indicating payment of all corporate
                  franchise   taxes  certified  as  of  a  recent  date  by  the
                  appropriate governmental taxing authorities.

                           (v)  Incumbency.  An incumbency  certificate  of each
                  Credit Party  certified by a secretary or assistant  secretary
                  to be true and correct as of the Closing Date.

                  (c) Financial Statements. Receipt by the Agent and the Lenders
         of (i) the  consolidated  financial  statements of the Borrower and its
         Subsidiaries,  including  balance  sheets  and  income  and  cash  flow
         statements  for the fiscal  quarter  ended  October  12,  1997,  (ii) a
         satisfactory estimated consolidated balance sheet of the Borrower as of
         November  9, 1997  giving  effect to the  acquisition  of the  Acquired
         Company and the  transactions  contemplated by the Merger Agreement and
         reflecting estimated purchase price accounting adjustments, prepared by
         the Company,  (iii) projected financial  statements of the Consolidated
         Parties for the fiscal  years  ending 1998  through and  including  the
         twelve month  period  ending  March 31,  2002,  including  consolidated
         balance  sheets,  statements of income and cash flow  statements of the
         Consolidated  Parties giving effect to the  Acquisition of the Acquired
         Company,  together with appropriate  supporting  details and such other
         facts as relate to the  ongoing  business of the  Consolidated  Parties
         (collectively,  the  "Projections")  which  shall be  accompanied  by a
         certificate of a Responsible Officer to the effect that the Projections
         (A) are based on reasonable estimates and assumptions, all of which are
         fair  in  light  of  the  conditions  which  existed  at the  time  the
         Projections  were  made,  (B) have  been  prepared  on the basis of the
         assumptions  stated  therein,  and  (C)  reflect,  as of  the  time  so
         furnished and the Closing Date, the reasonable estimate of the Borrower
         of the  results  of the  operations  and  other  information  projected
         therein,  and (iv) such other information  relating to the Borrower and
         its  Subsidiaries  or the Acquired  Company as the Agent may reasonably
         require in connection  with the  structuring  and syndication of credit
         facilities of the type described herein.

                  (d)  Opinions  of  Counsel.  The  Agent  shall  have  received
         favorable  opinions  dated as of the  Closing  Date of  counsel  to the
         Credit  Parties  addressed  to the lenders  with  respect to the Credit
         Parties,  the Credit  Documents  and such other  matters as the lenders
         shall request:

                  (e)   Personal Property Collateral.  The Agent shall have
         received:

                        (i) searches of Uniform  Commercial  Code filings in the
                  jurisdiction  of the chief  executive  office  of each  Credit
                  Party and each jurisdiction where any Collateral is located or
                  where a filing  would need to be made in order to perfect  the
                  Agent's  security  interest in the  Collateral,  copies of the
                  financing   statements  on  file  in  such  jurisdictions  and
                  evidence that no Liens exist other than Permitted Liens;


                                      95
<PAGE>


                       (ii) duly  executed  UCC  financing  statements  for each
                  appropriate  jurisdiction as is necessary, in the Agent's sole
                  discretion,  to perfect the Agent's  security  interest in the
                  Collateral;

                      (iii)  searches of ownership of  intellectual  property in
                  the    appropriate     governmental     offices    and    such
                  patent/trademark/copyright  filings as  requested by the Agent
                  in order to  perfect  the  Agent's  security  interest  in the
                  Collateral;

                       (iv) all stock certificates  evidencing the Capital Stock
                  pledged  to  the  Agent  pursuant  to  the  Pledge  Agreement,
                  together  with duly  executed in blank  undated  stock  powers
                  attached thereto (unless,  with respect to the pledged Capital
                  Stock of any Foreign Subsidiary,  such stock powers are deemed
                  unnecessary  by the Agent in its reasonable  discretion  under
                  the law of the jurisdiction of incorporation of such Person);

                        (v) such patent/trademark/copyright filings as requested
                  by the Agent in order to
                  perfect the Agent's security interest in the Collateral;

                       (vi) all  instruments and chattel paper in the possession
                  of  any of the  Credit  Parties,  together  with  allonges  or
                  assignments  as may be necessary or appropriate to perfect the
                  Agent's security interest in the Collateral; and

                      (vii) duly  executed  consents  as are  necessary,  in the
                  Agent's  sole  discretion,  to perfect the  Lenders'  security
                  interest in the Collateral.

                  (f)  Priority  of  Liens.   The  Agent  shall  have   received
         satisfactory  evidence  that (i) the Agent,  on behalf of the  Lenders,
         holds a perfected,  first priority Lien on all Collateral and (ii) none
         of the  Collateral  is subject to any other Liens other than  Permitted
         Liens.

                  (g) Evidence of  Insurance.  Receipt by the Agent of copies of
         insurance  policies or  certificates  of insurance of the  Consolidated
         Parties  evidencing   liability  and  casualty  insurance  meeting  the
         requirements  set forth in the  Credit  Documents,  including,  but not
         limited  to,  naming  the  Agent as sole  loss  payee on  behalf of the
         Lenders.

                  (h) Corporate  Structure.  The corporate capital and ownership
         structure  of the  Consolidated  Parties  (after  giving  effect to the
         purchase of the  Acquired  Company)  shall be as  described in Schedule
         5.1(h).

                                96

<PAGE>


                  (i) Government Consent.  Receipt by the Agent of evidence that
         all  governmental,   shareholder  and  material  third  party  consents
         (including  Hart-Scott-Rodino  clearance)  and  approvals  necessary or
         desirable in connection  with the  acquisition of the Acquired  Company
         and the related financings and other transactions  contemplated  hereby
         and expiration of all  applicable  waiting  periods  without any action
         being taken by any authority that could restrain, prevent or impose any
         material adverse  conditions on the acquisition of the Acquired Company
         or such other  transactions  or that could seek or threaten  any of the
         foregoing,  and no law or regulation  shall be applicable  which in the
         judgment of the Agent could have such effect.

                  (j) Material Adverse Effect.  No material adverse change shall
         have  occurred  since March 30,  1997 in the  condition  (financial  or
         otherwise),  business,  management  or  prospects  of the  Consolidated
         Parties taken as a whole.

                  (k) Litigation.  There shall not exist (i) any order,  decree,
         judgment,  ruling or injunction which restrains the consummation of the
         acquisition of the Acquired  Company in the manner  contemplated by the
         Merger  Agreement  or (ii) any  pending  or  threatened  action,  suit,
         investigation  or proceeding  against a  Consolidated  Party that could
         have a Material Adverse Effect.

                  (l) Other Indebtedness. Receipt by the Agent of evidence that,
         after the acquisition of the Acquired Company, the Consolidated Parties
         shall have no Funded Indebtedness other than the Indebtedness under the
         Credit Documents.

                  (m) Merger  Agreement.  There shall not have been any material
         modification,  amendment,  supplement or waiver to the Merger Agreement
         without  the prior  written  consent of the Agent,  including,  but not
         limited to, any modification,  amendment, supplement or waiver relating
         to the amount or type of  consideration  to be paid in connection  with
         the  acquisition  of the  Acquired  Company  and  the  contents  of all
         disclosure schedules and exhibits,  and the acquisition of the Acquired
         Company shall have been consummated in accordance with the terms of the
         Merger  Agreement  (without  waiver of any conditions  precedent to the
         obligations of the buyer  thereunder)  and the expenses of the Borrower
         related  to  such  acquisition  shall  not  exceed  $1,000,000  in  the
         aggregate.  The Agent  shall  have  received a final copy of the Merger
         Agreement,  together with all exhibits and schedules thereto, certified
         by an officer of the Borrower.

                                     97

<PAGE>


                  (n)  Officer's  Certificates.  The Agent shall have received a
         certificate or  certificates  executed by a Responsible  Officer of the
         Borrower  as of the Closing  Date  stating  that (i) all  governmental,
         shareholder  and third  party  consents  and  approvals,  if any,  with
         respect  to the  Credit  Documents  and the  transactions  contemplated
         thereby  have  been  obtained,  (ii)  each  Consolidated  Party  is  in
         compliance with all existing  financial  obligations,  (iii) no action,
         suit, investigation or proceeding is pending or threatened in any court
         or before any arbitrator or governmental  instrumentality that purports
         to affect any Consolidated Party or any transaction contemplated by the
         Credit  Documents,  if such action,  suit,  investigation or proceeding
         could  have  a  Material   Adverse   Effect,   (iv)  the   transactions
         contemplated  by  the  Merger   Agreement  have  been   consummated  in
         accordance  with the terms  thereof and (v)  immediately  after  giving
         effect to this Credit Agreement, the other Credit Documents and all the
         transactions  contemplated  therein to occur on such date,  (A) each of
         the  Credit  Parties  is  Solvent,  (B) no  Default or Event of Default
         exists, (C) all representations and warranties  contained herein and in
         the  other  Credit  Documents  are true  and  correct  in all  material
         respects, and (D) the Credit Parties are in compliance with each of the
         financial covenants set forth in Section 7.11.

                  (o)      Existing Credit Agreement.  The Agent shall have
         received satisfactory evidence that the Existing Credit Agreement has
         been terminated.

                  (p) Fees and  Expenses.  Payment by the Credit  Parties of all
         fees and expenses owed by them to the Lenders and the Agent, including,
         without  limitation,  payment to the Agent of the fees set forth in the
         Fee Letter.

                  (q)  Other.  Receipt by the  Lenders of such other  documents,
         instruments,  agreements or information as reasonably  requested by any
         Lender,   including,   but  not  limited  to,   information   regarding
         litigation,  tax,  accounting,  labor,  insurance,  pension liabilities
         (actual or contingent),  real estate leases,  material contracts,  debt
         agreements,  property  ownership  and  contingent  liabilities  of  the
         Consolidated Parties.

         5.2      Conditions to all Extensions of Credit.

         The obligations of each Lender to make,  convert or extend any Loan and
of the  Issuing  Lender to issue or extend any Letter of Credit  (including  the
initial Loans and the initial Letter of Credit) are subject to  satisfaction  of
the following  conditions in addition to satisfaction on the Closing Date of the
conditions set forth in Section 5.1:

                  (a) The Borrower  shall have  delivered (i) in the case of any
         Revolving Loan or any portion of the Term Loan, an  appropriate  Notice
         of Borrowing or Notice of  Extension/Conversion  or (ii) in the case of
         any  Letter of Credit,  the  Issuing  Lender  shall  have  received  an
         appropriate  request for issuance in accordance  with the provisions of
         Section 2.2(b);

                  (b) The  representations and warranties set forth in Section 6
         shall,  subject  to the  limitations  set  forth  therein,  be true and
         correct in all  material  respects  as of such date  (except  for those
         which expressly relate to an earlier date);

                  (c)  No  Default  or  Event  of  Default  shall  exist  and be
         continuing either prior to or after giving effect thereto;

                  (d) Immediately after giving effect to the making of such Loan
         (and the  application  of the  proceeds  thereof) or to the issuance of
         such Letter of Credit, as the case may be, (i) the sum of the aggregate
         principal  amount of outstanding  Revolving  Loans plus LOC Obligations
         outstanding shall not exceed the Revolving  Committed Amount,  and (ii)
         the LOC Obligations shall not exceed the LOC Committed Amount.

                                        98
<PAGE>


The delivery of each Notice of  Borrowing,  each Notice of  Extension/Conversion
and each  request  for a Letter of  Credit  pursuant  to  Section  2.2(b)  shall
constitute a  representation  and warranty by the Borrower of the correctness of
the matters specified in subsections (b), (c), and (d), above.


                                    SECTION 6

                         REPRESENTATIONS AND WARRANTIES

         The Credit Parties hereby represent to the Agent and each Lender that:

         6.1      Financial Condition.

                  (a) The audited  consolidated and consolidating  balance sheet
         of the  Consolidated  Parties  as of March  30,  1997  and the  audited
         consolidated  statements  of earnings and  statements of cash flows for
         the years ended March 31,  1996,  March 26, 1995 and March 27, 1994 and
         for the seven 4-week  periods  ended  October 12, 1997 have  heretofore
         been furnished to each Lender. Such financial statements (including the
         notes  thereto)  (i) have been audited by Deloitte & Touche LLP (except
         for the seven  4-week  periods  ending  October 12, 1997 which have not
         been  audited),  (ii)  have  been  prepared  in  accordance  with  GAAP
         consistently  applied  throughout the periods covered thereby and (iii)
         present  fairly  (on  the  basis  disclosed  in the  footnotes  to such
         financial statements) the consolidated financial condition,  results of
         operations and cash flows of the  Consolidated  Parties as of such date
         and for such  periods.  The  unaudited  interim  balance  sheets of the
         Consolidated  Parties  as at the end  of,  and  the  related  unaudited
         interim statements of earnings and of cash flows for, each fiscal month
         and  quarterly  period  ended after  December 31, 1996 and prior to the
         Closing  Date have  heretofore  been  furnished  to each  Lender.  Such
         interim financial  statements for each such quarterly period,  (i) have
         been prepared in accordance with GAAP consistently  applied  throughout
         the  periods  covered  thereby  and (ii)  present  fairly (on the basis
         disclosed  in  the  footnotes  to  such   financial   statements)   the
         consolidated financial condition,  results of operations and cash flows
         of the  Consolidated  Parties  as of such  date and for  such  periods.
         During the period from  December 31, 1996 to and  including the Closing
         Date,  there has been no sale,  transfer  or other  disposition  by any
         Consolidated  Party of any material part of the business or property of
         the  Consolidated  Parties,  taken as a whole, and no purchase or other
         acquisition  by any of them of any business or property  (including any
         capital  stock  of  any  other  person)  material  in  relation  to the
         consolidated  financial condition of the Consolidated Parties, taken as
         a  whole,  in each  case,  which,  is not  reflected  in the  foregoing
         financial statements or in the notes thereto and has not otherwise been
         disclosed in writing to the Lenders on or prior to the Closing Date.

                                     99

<PAGE>


                  (b)  The  pro  forma   consolidated   balance   sheet  of  the
         Consolidated  Parties  as of  November  9,  1997  giving  effect to the
         Acquisition,  in accordance with the terms of the Merger  Agreement and
         reflecting  estimated  purchase  price  accounting   adjustments,   has
         heretofore been furnished to each Lender.  Such pro forma balance sheet
         is based upon reasonable assumptions made known to the Lenders and upon
         information  not  known  as of  the  date  hereof  to be  incorrect  or
         misleading in any material respect.

                  (c) The financial statements delivered to the Lenders pursuant
         to Section  7.1(a) and (b), (i) have been prepared in  accordance  with
         GAAP (except as may  otherwise be permitted  under  Section  7.1(a) and
         (b)) and (ii) present  fairly (on the basis  disclosed in the footnotes
         to such financial  statements) the  consolidated  financial  condition,
         results of operations and cash flows of the Consolidated  Parties as of
         such date and for such periods.

         6.2      No Material Change.

         Since  March  30,  1997,  (a) there  has been no  development  or event
relating  to or  affecting  a  Consolidated  Party which has had or could have a
Material Adverse Effect and (b) except as otherwise  permitted under this Credit
Agreement,  no dividends or other distributions have been declared, paid or made
upon the Capital Stock in a Consolidated  Party nor has any of the Capital Stock
in a Consolidated Party been redeemed,  retired, purchased or otherwise acquired
for value.

         6.3      Organization and Good Standing.

         Each  of the  Consolidated  Parties  (a)  is  duly  organized,  validly
existing  and is in good  standing  under  the laws of the  jurisdiction  of its
incorporation  or  organization,  (b) has the corporate or other necessary power
and authority,  and the legal right,  to own and operate its property,  to lease
the  property it  operates as lessee and to conduct the  business in which it is
currently  engaged  and (c) is duly  qualified  as a foreign  entity and in good
standing  under  the laws of each  jurisdiction  where its  ownership,  lease or
operation   of  property  or  the  conduct  of  its   business   requires   such
qualification,  other  than in such  jurisdictions  where the  failure  to be so
qualified and in good standing could have a Material Adverse Effect.

         6.4      Power; Authorization; Enforceable Obligations.

                                    100

<PAGE>


         Each of the Credit Parties has the corporate or other  necessary  power
and  authority,  and the legal  right,  to make,  deliver and perform the Credit
Documents  to which it is a party,  and in the case of the  Borrower,  to obtain
extensions of credit hereunder,  and has taken all necessary corporate action to
authorize  the  borrowings  and  other  extensions  of  credit  on the terms and
conditions of this Credit Agreement and to authorize the execution, delivery and
performance  of the  Credit  Documents  to which it is a party.  No  consent  or
authorization  of, filing with,  notice to or other similar act by or in respect
of, any Governmental Authority or any other Person is required to be obtained or
made by or on behalf of any Credit Party in  connection  with the  borrowings or
other  extensions  of  credit   hereunder  or  with  the  execution,   delivery,
performance,  validity or  enforceability  of the Credit Documents to which such
Credit Party is a party,  except for (a) consents,  authorizations,  notices and
filings  described in Schedule  6.4, all of which have been  obtained or made or
have the status  described  in such  Schedule 6.4 and (b) filings to perfect the
Liens created by the Collateral  Documents.  This Credit Agreement has been, and
each other  Credit  Document to which any Credit  Party is a party will be, duly
executed and delivered on behalf of the Credit  Parties.  This Credit  Agreement
constitutes, and each other Credit Document to which any Credit Party is a party
when  executed  and  delivered  will  constitute,  a legal,  valid  and  binding
obligation  of such Credit Party  enforceable  against such party in  accordance
with  its  terms,   except  as  enforceability  may  be  limited  by  applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the
enforcement of creditors' rights generally and by general  equitable  principles
(whether enforcement is sought by proceedings in equity or at law).

         6.5      No Conflicts.

         Neither the  execution  and delivery of the Credit  Documents,  nor the
consummation of the transactions  contemplated  therein,  nor performance of and
compliance  with the terms and provisions  thereof by such Credit Party will (a)
violate or  conflict  with any  provision  of its  articles  or  certificate  of
incorporation or bylaws or other  organizational or governing  documents of such
Person, (b) violate,  contravene or materially  conflict with any Requirement of
Law or any other law, regulation (including, without limitation, Regulation U or
Regulation X), order, writ, judgment, injunction, decree or permit applicable to
it, (c) violate, contravene or conflict with contractual provisions of, or cause
an event of default under,  any indenture,  loan  agreement,  mortgage,  deed of
trust,  contract or other  agreement or  instrument to which it is a party or by
which it may be bound,  the  violation  of which  could have a Material  Adverse
Effect,  or (d) result in or require the  creation of any Lien (other than those
contemplated in or created in connection with the Credit Documents) upon or with
respect to its properties.

         6.6      No Default.

         No Consolidated  Party is in default in any respect under any contract,
lease,  loan  agreement,   indenture,  mortgage,  security  agreement  or  other
agreement or obligation to which it is a party or by which any of its properties
is bound which default could have a Material Adverse Effect. No Default or Event
of Default has occurred or exists except as  previously  disclosed in writing to
the Lenders.

         6.7      Ownership.

         Each  Consolidated  Party is the owner of, and has good and  marketable
title to, all of its respective assets and none of such assets is subject to any
Lien other than Permitted Liens.

         6.8      Indebtedness.


                                   101
<PAGE>


         Except as otherwise  permitted  under  Section  8.1,  the  Consolidated
Parties have no Indebtedness.

         6.9      Litigation.

         Except as disclosed  in Schedule  6.9,  there are no actions,  suits or
legal, equitable,  arbitration or administrative proceedings, pending or, to the
knowledge of any Credit Party,  threatened  against any Consolidated Party which
might have a Material Adverse Effect.

         6.10     Taxes.

         Each  Consolidated  Party has  filed,  or  caused to be filed,  all tax
returns  (federal,  state,  local and foreign) required to be filed and paid (a)
all amounts of taxes shown thereon to be due (including  interest and penalties)
and (b) all  other  taxes,  fees,  assessments  and other  governmental  charges
(including  mortgage  recording taxes,  documentary  stamp taxes and intangibles
taxes) owing by it,  except for such taxes (i) which are not yet  delinquent  or
(ii) that are being  contested  in good  faith  and by proper  proceedings,  and
against which adequate reserves are being maintained in accordance with GAAP. No
Credit Party is aware as of the Closing  Date of any  proposed  tax  assessments
against it or any other Consolidated Party.

         6.11     Compliance with Law.

         Each  Consolidated  Party is in compliance with all Requirements of Law
and all other laws, rules,  regulations,  orders and decrees  (including without
limitation  Environmental  Laws) applicable to it, or to its properties,  unless
such failure to comply could not have a Material Adverse Effect.  No Requirement
of Law could cause a Material Adverse Effect.

         6.12     ERISA.

                  (a) During  the  five-year  period  prior to the date on which
         this  representation  is made or deemed  made:  (i) no ERISA  Event has
         occurred, and, to the best knowledge of the Credit Parties, no event or
         condition  has  occurred or exists as a result of which any ERISA Event
         could  reasonably be expected to occur,  with respect to any Plan; (ii)
         no "accumulated funding deficiency," as such term is defined in Section
         302 of ERISA and  Section 412 of the Code,  whether or not waived,  has
         occurred with respect to any Plan; (iii) each Plan has been maintained,
         operated,  and funded in compliance  with its own terms and in material
         compliance  with the  provisions  of  ERISA,  the  Code,  and any other
         applicable federal or state laws; and (iv) no lien in favor of the PBGC
         or a Plan has arisen or is reasonably likely to arise on account of any
         Plan.

                                      102

<PAGE>


                  (b) The actuarial  present value of all "benefit  liabilities"
         (as defined in Section  4001(a)(16)  of ERISA),  whether or not vested,
         under each Single  Employer Plan, as of the last annual  valuation date
         prior to the date on which this  representation  is made or deemed made
         (determined,  in each case, utilizing the actuarial assumptions used in
         such Plan's most recent actuarial valuation report),  did not exceed as
         of such  valuation  date the fair  market  value of the  assets of such
         Plan.

                  (c) Neither any Consolidated Party nor any ERISA Affiliate has
         incurred,  or, to the best  knowledge of the Credit  Parties,  could be
         reasonably  expected to incur, any withdrawal  liability under ERISA to
         any  Multiemployer   Plan  or  Multiple  Employer  Plan.   Neither  any
         Consolidated  Party nor any ERISA Affiliate would become subject to any
         withdrawal liability under ERISA if any Consolidated Party or any ERISA
         Affiliate were to withdraw  completely from all Multiemployer Plans and
         Multiple Employer Plans as of the valuation date most closely preceding
         the date on which this  representation is made or deemed made.  Neither
         any  Consolidated  Party  nor any  ERISA  Affiliate  has  received  any
         notification that any Multiemployer  Plan is in reorganization  (within
         the meaning of Section 4241 of ERISA), is insolvent (within the meaning
         of Section 4245 of ERISA),  or has been terminated  (within the meaning
         of Title  IV of  ERISA),  and no  Multiemployer  Plan  is,  to the best
         knowledge  of  the  Credit  Parties,   reasonably  expected  to  be  in
         reorganization, insolvent, or terminated.

                  (d) No prohibited  transaction  (within the meaning of Section
         406 of ERISA  or  Section  4975 of the  Code) or  breach  of  fiduciary
         responsibility  has occurred with respect to a Plan which has subjected
         or may subject any  Consolidated  Party or any ERISA  Affiliate  to any
         liability  under  Sections  406,  409,  502(i),  or  502(l) of ERISA or
         Section 4975 of the Code,  or under any  agreement or other  instrument
         pursuant to which any  Consolidated  Party or any ERISA  Affiliate  has
         agreed  or is  required  to  indemnify  any  person  against  any  such
         liability.

                  (e) Neither any  Consolidated  Party nor any ERISA  Affiliates
         has any material  liability  with respect to "expected  post-retirement
         benefit  obligations"  within the meaning of the  Financial  Accounting
         Standards Board Statement 106.

         6.13     Subsidiaries.


                                       103
<PAGE>


         Set forth on  Schedule  6.13 is a  complete  and  accurate  list of all
Subsidiaries of each Consolidated  Party.  Information on Schedule 6.13 includes
jurisdiction  of  incorporation,  the  number of shares of each class of Capital
Stock outstanding, the number and percentage of outstanding shares of each class
owned (directly or indirectly) by such  Consolidated  Party;  and the number and
effect, if exercised, of all outstanding options, warrants, rights of conversion
or purchase and all other similar rights with respect  thereto.  The outstanding
Capital  Stock  of all such  Subsidiaries  is  validly  issued,  fully  paid and
non-assessable  and is  owned  by each  such  Consolidated  Party,  directly  or
indirectly,  free and clear of all Liens  (other  than  those  arising  under or
contemplated in connection with the Credit  Documents).  Other than as set forth
in  Schedule  6.13,  no  Consolidated   Party  has  outstanding  any  securities
convertible  into or exchangeable for its Capital Stock nor does any such Person
have  outstanding  any rights to subscribe for or to purchase or any options for
the purchase of, or any  agreements  providing for the issuance  (contingent  or
otherwise) of, or any calls,  commitments or claims of any character relating to
its  Capital  Stock.  Schedule  6.13  may be  updated  from  time to time by the
Borrower by giving written notice thereof to the Agent.

         6.14     Governmental Regulations, Etc.

                  (a) No part of the  Letters of Credit or proceeds of the Loans
         will be used, directly or indirectly,  for the purpose of purchasing or
         carrying  any  "margin  stock"  within the meaning of  Regulation  G or
         Regulation  U, or for the purpose of  purchasing or carrying or trading
         in any  securities.  If  requested  by any  Lender  or the  Agent,  the
         Borrower  will  furnish to the Agent and each Lender a statement to the
         foregoing  effect in conformity  with the  requirements  of FR Form U-1
         referred to in Regulation U. No  indebtedness  being reduced or retired
         out of the  proceeds  of the  Loans  was or  will be  incurred  for the
         purpose of  purchasing  or carrying any margin stock within the meaning
         of  Regulation  U or  any  "margin  security"  within  the  meaning  of
         Regulation  T. "Margin  stock"  within the meaning of Regulation U does
         not constitute more than 25% of the value of the consolidated assets of
         the Consolidated Parties. None of the transactions contemplated by this
         Credit Agreement (including, without limitation, the direct or indirect
         use of the proceeds of the Loans) will violate or result in a violation
         of the Securities Act of 1933, as amended,  or the Securities  Exchange
         Act of 1934, as amended,  or regulations  issued pursuant  thereto,  or
         Regulation G, T, U or X.

                  (b) No Consolidated  Party is subject to regulation  under the
         Public  Utility  Holding  Company Act of 1935, the Federal Power Act or
         the Investment  Company Act of 1940, each as amended.  In addition,  no
         Consolidated  Party  is  (i)  an  "investment  company"  registered  or
         required to be registered under the Investment  Company Act of 1940, as
         amended,  and is not  controlled by such a company,  or (ii) a "holding
         company",  or a  "subsidiary  company"  of a "holding  company",  or an
         "affiliate" of a "holding  company" or of a "subsidiary"  of a "holding
         company",  within the meaning of the Public Utility Holding Company Act
         of 1935, as amended.

                  (c) No director, executive officer or principal shareholder of
         any Consolidated  Party is a director,  executive  officer or principal
         shareholder  of  any  Lender.   For  the  purposes   hereof  the  terms
         "director",  "executive officer" and "principal shareholder" (when used
         with  reference to any Lender) have the  respective  meanings  assigned
         thereto in Regulation O issued by the Board of Governors of the Federal
         Reserve System.

                  (d) Each  Consolidated  Party has  obtained  and holds in full
         force and effect,  all  franchises,  licenses,  permits,  certificates,
         authorizations,  qualifications,  accreditations,  easements, rights of
         way and other rights,  consents and  approvals  which are necessary for
         the  ownership  of its  respective  Property  and to the conduct of its
         respective businesses as presently conducted.

                                    104

<PAGE>


                  (e) No  Consolidated  Party is in violation of any  applicable
         statute, regulation or ordinance of the United States of America, or of
         any state, city, town, municipality,  county or any other jurisdiction,
         or of any agency thereof (including without  limitation,  environmental
         laws and  regulations),  which violation could have a Material  Adverse
         Effect.

                  (f) Each  Consolidated  Party  is  current  with all  material
         reports and documents,  if any,  required to be filed with any state or
         federal  securities  commission  or  similar  agency  and  is  in  full
         compliance  in all  material  respects  with all  applicable  rules and
         regulations of such commissions.

         6.15     Purpose of Loans and Letters of Credit.

         The  proceeds  of the  Loans  hereunder  shall  be used  solely  by the
Borrower to (a) finance a portion of the purchase price of the  Acquisition  and
to pay  certain  fees and  expenses  related  thereto,  (b)  refinance  existing
Indebtedness and (c) provide for working capital and capital  expenditures.  The
Letters of Credit  shall be used only for or in  connection  with appeal  bonds,
reimbursement  obligations  arising in  connection  with surety and  reclamation
bonds, reinsurance, domestic or international trade transactions and obligations
not  otherwise  aforementioned  relating  to  transactions  entered  into by the
applicable account party in the ordinary course of business.

         6.16     Environmental Matters.

                  (a) Each of the  facilities and  properties  owned,  leased or
         operated  by  the  Consolidated  Parties  (the  "Properties")  and  all
         operations  at the  Properties  are in compliance  with all  applicable
         Environmental  Laws, and there is no violation of any Environmental Law
         with  respect  to the  Properties  or the  businesses  operated  by the
         Consolidated  Parties (the  "Businesses"),  and there are no conditions
         relating  to the  Businesses  or  Properties  that  could  give rise to
         liability under any applicable Environmental Laws.

                  (b)  None  of  the  Properties  contains,  or  has  previously
         contained,  any Materials of Environmental  Concern at, on or under the
         Properties in amounts or concentrations  that constitute or constituted
         a violation  of, or could give rise to liability  under,  Environmental
         Laws.

                  (c) No  Consolidated  Party has received any written or verbal
         notice of, or inquiry from any Governmental  Authority  regarding,  any
         violation,  alleged violation,  non-compliance,  liability or potential
         liability   regarding   environmental   matters  or   compliance   with
         Environmental  Laws  with  regard  to  any  of  the  Properties  or the
         Businesses, nor does any Consolidated Party have knowledge or reason to
         believe that any such notice will be received or is being threatened.

                  (d)   Materials  of   Environmental   Concern  have  not  been
         transported or disposed of from the Properties, or generated,  treated,
         stored or  disposed  of at, on or under  any of the  Properties  or any
         other location,  in each case by or on behalf of any Consolidated Party
         in  violation  of, or in a manner  that  could  give rise to  liability
         under, any applicable Environmental Law.

                                    105
<PAGE>



                  (e) No judicial  proceeding or governmental or  administrative
         action  is  pending  or, to the best  knowledge  of any  Credit  Party,
         threatened, under any Environmental Law to which any Consolidated Party
         is or will be named as a party,  nor are there any  consent  decrees or
         other decrees,  consent orders,  administrative orders or other orders,
         or other administrative or judicial requirements  outstanding under any
         Environmental  Law  with  respect  to  the  Consolidated  Parties,  the
         Properties or the Businesses.

                  (f)  There  has been no  release  or,  threat  of  release  of
         Materials  of  Environmental  Concern  at or from  the  Properties,  or
         arising  from  or  related  to  the  operations   (including,   without
         limitation,  disposal) of any Consolidated Party in connection with the
         Properties or otherwise in connection with the Businesses, in violation
         of or in amounts or in a manner that could give rise to liability under
         Environmental Laws.

         6.17     Intellectual Property.

         Each  Consolidated  Party  owns,  or has the  legal  right to use,  all
trademarks,  tradenames,  copyrights,  technology,  know-how and processes  (the
"Intellectual  Property")  necessary for each of them to conduct its business as
currently conducted except for those the failure to own or have such legal right
to use could not have a Material Adverse Effect. Set forth on Schedule 6.17 is a
list of all Intellectual  Property owned by each Consolidated  Party or that any
Consolidated Party has the right to use. Except as provided on Schedule 6.17, no
claim has been asserted and is pending by any Person  challenging or questioning
the use of any such  Intellectual  Property or the validity or  effectiveness of
any such  Intellectual  Property,  nor does any  Credit  Party  know of any such
claim,  and to the  Credit  Parties'  knowledge  the  use of  such  Intellectual
Property  by any  Consolidated  Party  does not  infringe  on the  rights of any
Person,  except for such claims and infringements  that in the aggregate,  could
not have a Material  Adverse  Effect.  Schedule 6.17 may be updated from time to
time by the Borrower by giving written notice thereof to the Agent.

         6.18     Solvency.

         Each  Credit  Party  is and,  after  consummation  of the  transactions
contemplated  by  this  Credit  Agreement   (including  without  limitation  the
acquisition of the Acquired Company by the Borrower), will be Solvent.

         6.19     Investments.

         All Investments of each Consolidated Party are Permitted Investments.

         6.20     Location of Collateral.

                                   106

<PAGE>


         Set forth on  Schedule  6.20(a)  is a list of all  locations  where any
tangible personal property of a Consolidated Party is located,  including county
and state where located.  Set forth on Schedule  6.20(b) is the chief  executive
office and  principal  place of business of each  Consolidated  Party.  Schedule
6.20(a)  and  6.20(b) may be updated  from time to time by the  Borrower  giving
written notice thereof to the Agent.

         6.21     Disclosure.

         Neither this Credit Agreement nor any financial statements delivered to
the Lenders nor any other  document,  certificate or statement  furnished to the
Lenders  by or on  behalf  of any  Consolidated  Party  in  connection  with the
transactions  contemplated  hereby  contains any untrue  statement of a material
fact or omits to state a material fact necessary in order to make the statements
contained therein or herein not misleading.

         6.22     No Burdensome Restrictions.

         No  Consolidated  Party is a party to any  agreement or  instrument  or
subject to any other  obligation or any charter or corporate  restriction or any
provision of any applicable  law, rule or regulation  which,  individually or in
the aggregate, could have a Material Adverse Effect.

         6.23     Brokers' Fees.

         Except for investment banking and other related fees in connection with
the purchase by the Borrower of the Acquired Company,  no Consolidated Party has
any  obligation to any Person in respect of any finder's,  broker's,  investment
banking  or  other  similar  fee in  connection  with  any  of the  transactions
contemplated under the Credit Documents.

         6.24     Labor Matters.

         There are no collective  bargaining  agreements or Multiemployer  Plans
covering the employees of a  Consolidated  Party as of the Closing Date and none
of the Consolidated Parties has suffered any strikes,  walkouts,  work stoppages
or other material labor difficulty within the last five years.

         6.25     Representations and Warranties from Merger Agreement.

         As of the Closing Date, each of the representations and warranties made
in the Merger  Agreement  by each of the parties  thereto is true and correct in
all material respects.

                                     107
<PAGE>
                                    SECTION 7

                              AFFIRMATIVE COVENANTS


         Each  Credit  Party  hereby  covenants  and agrees that so long as this
Credit  Agreement  is in effect or any amounts  payable  hereunder  or under any
other Credit Document shall remain outstanding, and until all of the Commitments
hereunder shall have terminated:

         7.1      Information Covenants.

         The Borrower will furnish,  or cause to be furnished,  to the Agent and
each of the Lenders:

                  (a) Annual Financial Statements.  As soon as available, and in
         any event  within 90 days  after the close of each  fiscal  year of the
         Consolidated Parties, a consolidated balance sheet and income statement
         of the  Consolidated  Parties,  as of  the  end of  such  fiscal  year,
         together  with  related  consolidated   statements  of  operations  and
         retained earnings and of cash flows for such fiscal year, setting forth
         in comparative form consolidated figures for the preceding fiscal year,
         all such financial information described above to be in reasonable form
         and detail and audited by independent  certified public  accountants of
         recognized  national  standing  reasonably  acceptable to the Agent and
         whose  opinion  shall be to the effect that such  financial  statements
         have been  prepared in  accordance  with GAAP  (except for changes with
         which such accountants concur) and shall not be limited as to the scope
         of the audit or qualified as to the status of the Consolidated  Parties
         as a going concern.

                  (b) Quarterly Financial Statements.  As soon as available, and
         in any event  within 45 days after the close of each fiscal  quarter of
         the  Consolidated  Parties  (other than the fourth fiscal  quarter,  in
         which case 90 days after the end thereof) a consolidated  balance sheet
         and income statement of the Consolidated Parties, as of the end of such
         fiscal  quarter,  together  with  related  consolidated  statements  of
         operations  and  retained  earnings  and of cash flows for such  fiscal
         quarter in each case setting  forth in  comparative  form  consolidated
         figures for the corresponding  period of the preceding fiscal year, all
         such financial information described above to be in reasonable form and
         detail and  reasonably  acceptable to the Agent,  and  accompanied by a
         certificate of a Responsible  Officer to the effect that such quarterly
         financial  statements  fairly  present  in all  material  respects  the
         financial condition of the Consolidated  Parties and have been prepared
         in accordance  with GAAP,  subject to changes  resulting from audit and
         normal year-end audit adjustments.

                                    108
<PAGE>


                  (c) Monthly Financial Statements. As soon as available, and in
         any  event  within  30  days  after  the  end  of  each  month  of  the
         Consolidated  Parties, a consolidated balance sheet of the Consolidated
         Parties as of the end of such month, together with related consolidated
         statements  of operations  and retained  earnings and of cash flows for
         such month in each case setting forth in comparative form  consolidated
         figures for the corresponding  period of the preceding fiscal year, all
         such financial information described above to be in reasonable form and
         detail and  reasonably  acceptable to the Agent,  and  accompanied by a
         certificate  of a  Responsible  Officer  to the  effect  that  (i) such
         monthly  financial  statements  fairly present in all material respects
         the financial  condition of the  Consolidated  Parties,  (ii) have been
         prepared  in  accordance  with  GAAP,  and  (iii)  to  the  Responsible
         Officer's  knowledge,  no Default or Event of Default exists, or if any
         Default or Event of Default does exist specifying the nature and extent
         thereof and what action the Credit Parties propose to take with respect
         thereto.

                  (d)  Officer's  Certificate.  At the time of  delivery  of the
         financial  statements provided for in Sections 7.1(a) and 7.1(b) above,
         a certificate  of a Responsible  Officer  substantially  in the form of
         Exhibit  7.1(d),  (i)  demonstrating   compliance  with  the  financial
         covenants  contained in Section 7.11 by  calculation  thereof as of the
         end of each such  fiscal  period  and (ii)  stating  that no Default or
         Event of Default  exists,  or if any  Default or Event of Default  does
         exist,  specifying  the nature and extent  thereof  and what action the
         Credit Parties propose to take with respect thereto.

                  (e) Annual  Business Plan and Budgets.  At least 30 days prior
         to the end of each  fiscal  year of the  Borrower,  beginning  with the
         fiscal year ending March 29, 1998,  an annual  business plan and budget
         of the Consolidated Parties containing,  among other things,  projected
         financial statements for the next fiscal year.

                  (f)   Compliance   With  Certain   Provisions  of  the  Credit
         Agreement.  Within  90 days  after the end of each  fiscal  year of the
         Borrower, a certificate  containing information regarding the amount of
         all Asset  Dispositions  and Equity Issuances that were made during the
         prior fiscal year.

                  (g) Accountant's  Certificate.  Within the period for delivery
         of the  annual  financial  statements  provided  in Section  7.1(a),  a
         certificate of the accountants conducting the annual audit stating that
         they have reviewed this Credit  Agreement and stating further  whether,
         in the course of their audit,  they have become aware of any Default or
         Event of Default and, if any such  Default or Event of Default  exists,
         specifying the nature and extent thereof.

                  (h) Auditor's  Reports.  Promptly upon receipt thereof, a copy
         of any other report or  "management  letter"  submitted by  independent
         accountants to any  Consolidated  Party in connection  with any annual,
         interim or special audit of the books of such Person.

                                  109

<PAGE>


                  (i) Reports.  Promptly upon  transmission or receipt  thereof,
         (i) copies of any filings  and  registrations  with,  and reports to or
         from, the Securities and Exchange Commission,  or any successor agency,
         and copies of all financial statements,  proxy statements,  notices and
         reports as any Consolidated  Party shall send to its shareholders or to
         a holder  of any  Indebtedness  owed by any  Consolidated  Party in its
         capacity as such a holder and (ii) upon the  request of the Agent,  all
         reports  and  written   information  to  and  from  the  United  States
         Environmental   Protection   Agency,  or  any  state  or  local  agency
         responsible for environmental  matters,  the United States Occupational
         Health  and  Safety  Administration,  or  any  state  or  local  agency
         responsible for health and safety matters, or any successor agencies or
         authorities concerning environmental, health or safety matters.

                  (j) Notices.  Upon obtaining  knowledge thereof,  the Borrower
         will give written notice to the Agent immediately of (i) the occurrence
         of an event or condition  consisting  of a Default or Event of Default,
         specifying the nature and existence  thereof and what action the Credit
         Parties propose to take with respect  thereto,  and (ii) the occurrence
         of any of the following with respect to any Consolidated  Party (A) the
         pendency or commencement  of any  litigation,  arbitral or governmental
         proceeding against such Person which if adversely  determined is likely
         to  have  a  Material  Adverse  Effect,  (B)  the  institution  of  any
         proceedings  against  such  Person  with  respect to, or the receipt of
         notice by such Person of  potential  liability  or  responsibility  for
         violation,  or alleged  violation of any  federal,  state or local law,
         rule or regulation,  including but not limited to,  Environmental Laws,
         the violation of which could have a Material Adverse Effect, or (C) any
         notice or  determination  concerning  the  imposition of any withdrawal
         liability  by a  Multiemployer  Plan  against  such Person or any ERISA
         Affiliate,  the  determination  that a  Multiemployer  Plan  is,  or is
         expected  to be, in  reorganization  within the  meaning of Title IV of
         ERISA or the termination of any Plan.

                  (k) ERISA. Upon obtaining knowledge thereof, the Borrower will
         give written notice to the Agent promptly (and in any event within five
         business  days) of: (i) of any event or condition,  including,  but not
         limited to, any Reportable Event, that constitutes, or might reasonably
         lead to, an ERISA Event; (ii) with respect to any  Multiemployer  Plan,
         the  receipt  of  notice as  prescribed  in ERISA or  otherwise  of any
         withdrawal  liability assessed against the Borrower or any of its ERISA
         Affiliates,  or of a determination  that any  Multiemployer  Plan is in
         reorganization  or  insolvent  (both  within the meaning of Title IV of
         ERISA);  (iii) the  failure  to make full  payment on or before the due
         date   (including   extensions)   thereof  of  all  amounts  which  any
         Consolidated  Party or any ERISA Affiliate is required to contribute to
         each Plan  pursuant  to its terms and as  required  to meet the minimum
         funding  standard set forth in ERISA and the Code with respect thereto;
         or (iv) any change in the funding  status of any Plan that could have a
         Material Adverse Effect,  together with a description of any such event
         or  condition or a copy of any such notice and a statement by the chief
         financial  officer of the Borrower  briefly  setting  forth the details
         regarding such event,  condition,  or notice,  and the action,  if any,
         which  has been or is being  taken  or is  proposed  to be taken by the
         Credit Parties with respect thereto.  Promptly upon request, the Credit
         Parties  shall  furnish the Agent and the Lenders with such  additional
         information  concerning  any  Plan  as  may  be  reasonably  requested,
         including,  but not  limited to,  copies of each  annual  report/return
         (Form 5500 series),  as well as all schedules and  attachments  thereto
         required to be filed with the  Department  of Labor and/or the Internal
         Revenue Service pursuant to ERISA and the Code, respectively,  for each
         "plan year" (within the meaning of Section 3(39) of ERISA).

                                     110

<PAGE>


                  (l) Other  Information.  With  reasonable  promptness upon any
         such request, such other information regarding the business, properties
         or financial  condition of any  Consolidated  Party as the Agent or the
         Required Lenders may reasonably request.

         7.2      Preservation of Existence and Franchises.

         Except as a result of or in connection  with a  dissolution,  merger or
disposition  of a Subsidiary  permitted  under  Section 8.4 or Section 8.5, each
Credit  Party will,  and will cause each of its  Subsidiaries  to, do all things
necessary to preserve and keep in full force and effect its  existence,  rights,
franchises and authority.

         7.3      Books and Records.

         Each Credit  Party will,  and will cause each of its  Subsidiaries  to,
keep complete and accurate books and records of its  transactions  in accordance
with good accounting practices on the basis of GAAP (including the establishment
and maintenance of appropriate reserves).

         7.4      Compliance with Law.

         Each Credit  Party will,  and will cause each of its  Subsidiaries  to,
comply  with  all  laws,  rules,  regulations  and  orders,  and all  applicable
restrictions imposed by all Governmental  Authorities,  applicable to it and its
Property  if  noncompliance  with  any  such  law,  rule,  regulation,  order or
restriction could have a Material Adverse Effect.

         7.5      Payment of Taxes and Other Indebtedness.

         Each Credit Party will, and will cause each of its Subsidiaries to, pay
and  discharge (a) all taxes,  assessments  and  governmental  charges or levies
imposed upon it, or upon its income or profits,  or upon any of its  properties,
before they shall become delinquent, (b) all lawful claims (including claims for
labor,  materials and supplies) which, if unpaid, might give rise to a Lien upon
any of its properties,  and (c) except as prohibited hereunder, all of its other
Indebtedness  as it shall become due;  provided,  however,  that no Consolidated
Party shall be required to pay any such tax, assessment,  charge, levy, claim or
Indebtedness  which is being contested in good faith by appropriate  proceedings
and as to which adequate  reserves  therefor have been established in accordance
with GAAP, unless the failure to make any such payment (i) could give rise to an
immediate  right to foreclose on a Lien securing such amounts or (ii) could have
a Material Adverse Effect.

         7.6      Insurance.

                                   111

<PAGE>


                  Each  Credit   Party   will,   and  will  cause  each  of  its
Subsidiaries  to, at all times  maintain  in full  force  and  effect  insurance
(including  worker's  compensation  insurance,   liability  insurance,  casualty
insurance and business  interruption  insurance) in such amounts,  covering such
risks and liabilities and with such deductibles or self-insurance  retentions as
are in accordance with normal industry practice (or as otherwise required by the
Collateral Documents).  The Agent shall be named as loss payee or mortgagee,  as
its  interest  may appear,  and/or  additional  insured with respect to any such
insurance providing coverage in respect of any Collateral,  and each provider of
any such  insurance  shall  agree,  by  endorsement  upon the policy or policies
issued by it or by independent  instruments furnished to the Agent, that it will
give the Agent thirty (30) days prior  written  notice before any such policy or
policies  shall  be  altered  or  canceled,  and that no act or  default  of any
Consolidated  Party or any other  Person shall affect the rights of the Agent or
the Lenders under such policy or policies. The present insurance coverage of the
Consolidated Parties is outlined as to carrier, policy number,  expiration date,
type and amount on Schedule 7.6.

          7.7      Maintenance of Property.

          Each Credit Party will,  and will cause each of its  Subsidiaries  to,
  maintain and preserve its properties and equipment  material to the conduct of
  its business in good repair, working order and condition, normal wear and tear
  and casualty and condemnation excepted, and will make, or cause to be made, in
  such  properties  and  equipment  from  time to time  all  repairs,  renewals,
  replacements,  extensions,  additions, betterments and improvements thereto as
  may be needed  or  proper,  to the  extent  and in the  manner  customary  for
  companies in similar businesses.

          7.8      Performance of Obligations.

          Each Credit Party will,  and will cause each of its  Subsidiaries  to,
  perform in all material respects all of its obligations under the terms of all
  material agreements,  indentures, mortgages, security agreements or other debt
  instruments to which it is a party or by which it is bound.

          7.9      Use of Proceeds.

          The  Borrower  will use the  proceeds  of the  Loans  and will use the
  Letters of Credit solely for the purposes set forth in Section 6.15.

          7.10     Audits/Inspections.


                                    112
<PAGE>


         Upon reasonable  notice and during normal  business hours,  each Credit
Party will, and will cause each of its Subsidiaries  to, permit  representatives
appointed by the Agent, including, without limitation,  independent accountants,
agents,  attorneys, and appraisers to visit and inspect its property,  including
its books and records, its accounts receivable and inventory, its facilities and
its other business assets, and to make photocopies or photographs thereof and to
write down and record any  information  such  representative  obtains  and shall
permit the Agent or its  representatives  to investigate and verify the accuracy
of information  provided to the Lenders and to discuss all such matters with the
officers, employees and representatives of such Person. The Credit Parties agree
that the Agent,  and its  representatives,  may  conduct an annual  audit of the
Collateral, at the expense of the Borrower.

         7.11     Financial Covenants.

                  (a) Fixed Charge  Coverage  Ratio.  The Fixed Charge  Coverage
         Ratio,  as of the last day of each fiscal  quarter of the  Consolidated
         Parties  for each date of  determination  occurring  during each of the
         periods listed below, shall be greater than or equal to:

                         Period                        Ratio
                         ------                        -----
                     Fiscal year 1999               1.00 to 1.0
                     Fiscal year 2000               1.10 to 1.0
                     Fiscal year 2001               1.15 to 1.0
                     Fiscal year 2002               1.20 to 1.0
                       and thereafter

                  (b) Leverage Ratio.  The Leverage Ratio, as of the last day of
         each  fiscal  quarter  of the  Consolidated  Parties  for each  date of
         determination  occurring during each of the periods listed below, shall
         be less than or equal to:

                         Period                        Ratio
                         ------                        -----
                      Fiscal year 1999              1.60 to 1.0
                      Fiscal year 2000              1.20 to 1.0
                      Fiscal year 2002              1.00 to 1.0
                        and thereafter

                  (c)  Consolidated  EBITDA.  Consolidated  EBITDA at the end of
         each fiscal quarter of the Borrower for the immediately  preceding four
         consecutive fiscal quarters as shown on the financial statements of the
         Borrower  delivered  pursuant  to  Section  7.1(b)  for  each  date  of
         determination  occurring  during each of the periods listed below shall
         not be less than:

                          Period                       Amount
                          ------                       ------
                      Fiscal year 1999              $13,440,000
                      Fiscal year 2000              $14,370,000
                      Fiscal year 2001              $15,140,000
                      Fiscal year 2002              $16,540,000
                        and thereafter


                                     113
<PAGE>


                  (d) Capital  Expenditures.  Consolidated  Capital Expenditures
         for each  fiscal  year shall not exceed the amounts set forth below for
         the periods set forth below:

                          Period                      Amount
                          ------                      ------
                      Fiscal year 1998              $8.500,000
                      Fiscal year 1999              $8,600,000
                      Fiscal year 2000              $8,000,000
                      Fiscal year 2001              $8,000,000
                      Fiscal year 2002              $8,000,000
                        and thereafter

         provided, however (i) a Credit Party may use the Net Cash Proceeds from
         an Equity  Issuance  to make  additional  capital  expenditures  to the
         extent  such  Net  Cash  Proceeds  are not  required  to be paid to the
         Lenders  pursuant to Section  3.3(b)(iii)  and (ii) the Credit  Parties
         shall be permitted to carry forward (to the immediately succeeding year
         only) the lesser of (A) the unused  portion of the amount for the prior
         year or (B) $2,000,000;  provided,  further that  Consolidated  Capital
         Expenditures  may be increased  annually by 50% of Consolidated  Excess
         EBITDA for the immediately preceding fiscal year only.

         7.12     Additional Credit Parties.

         As soon as practicable and in any event within 30 days after any Person
becomes a Subsidiary of any Credit Party,  the Borrower  shall provide the Agent
with written  notice  thereof  setting forth  information  in reasonable  detail
describing  all of the assets of such  Person and shall (a) if such  Person is a
Domestic  Subsidiary of a Credit  Party,  cause such Person to execute a Joinder
Agreement in  substantially  the same form as Exhibit  7.12,  (b) cause 100% (if
such Person is a Domestic  Subsidiary  of a Credit Party) or 65% (if such Person
is a direct  Foreign  Subsidiary of a Credit Party) of the Capital Stock of such
Person to be delivered to the Agent  (together  with undated stock powers signed
in blank (unless,  with respect to a Foreign  Subsidiary,  such stock powers are
deemed  unnecessary by the Agent in its reasonable  discretion  under the law of
the  jurisdiction  of  incorporation  of such  Person)) and pledged to the Agent
pursuant to an appropriate pledge  agreement(s) in substantially the form of the
Pledge  Agreement  and  otherwise in form  acceptable to the Agent and (c) cause
such  Person to  provide  certified  resolutions  and other  organizational  and
authorizing  documents  of such  Person,  favorable  opinions of counsel to such
Person (which shall cover, among other things, the legality,  validity,  binding
effect  and  enforceability  of the  documentation  referred  to  above  and the
perfection  of the  Agent's  liens  thereunder)  and  other  items of the  types
required to be delivered  pursuant to Section 5.1(e),  all in form,  content and
scope reasonably satisfactory to the Agent.

         7.13     Pledged Assets.

                                  114

<PAGE>


         Each Credit  Party will,  and will cause each of its  Subsidiaries  to,
cause (a) all of its owned  personal  property  located in the United States and
(b) to the extent deemed to be material by the Agent or the Required  Lenders in
its or  their  sole  reasonable  discretion,  all of its  other  owned  personal
property, to be subject at all times to first priority, perfected Liens in favor
of the Agent pursuant to the terms and  conditions of the  Collateral  Documents
or, with respect to any such property  acquired  subsequent to the Closing Date,
such other additional  security documents as the Agent shall reasonably request.
In furtherance of the foregoing  terms of this Section 7.13, the Borrower agrees
to promptly  provide the Agent with written notice of the acquisition by, or the
entering  into a leasing by, any Credit  Party of any  asset(s)  having a market
value greater than $500,000, setting forth in reasonable detail the location and
a description  of the asset(s) so acquired.  Without  limiting the generality of
the above,  the Credit  Parties  will cause 100% of the  Capital  Stock or other
equity interest in each of their direct or indirect  Domestic  Subsidiaries  and
65% of the  Capital  Stock  or other  equity  interest  in each of their  direct
Foreign  Subsidiaries to be subject at all times to a first priority,  perfected
Lien  in  favor  of the  Agent  pursuant  to the  terms  and  conditions  of the
Collateral  Documents  or such  other  security  documents  as the  Agent  shall
reasonably request.

         If,  subsequent  to the Closing  Date, a Credit Party shall acquire any
intellectual property, securities,  instruments, chattel paper or other personal
property required to be delivered to the Agent as Collateral  hereunder or under
any of the Collateral  Documents,  the Borrower shall promptly (and in any event
within three (3) Business Days) after any responsible  officer of a Credit Party
acquires knowledge of same notify the Agent of same.


                                    SECTION 8

                               NEGATIVE COVENANTS

         Each Credit Party  hereby  covenants  and agrees that,  so long as this
Credit  Agreement  is in effect or any amounts  payable  hereunder  or under any
other Credit Document shall remain outstanding, and until all of the Commitments
hereunder shall have terminated:

         8.1      Indebtedness.

         The Credit Parties will not permit any Consolidated  Party to contract,
create, incur, assume or permit to exist any Indebtedness, except:

                  (a)  Indebtedness arising under this Credit Agreement and the
         other Credit Documents;


                                    115
<PAGE>


                  (b)  Indebtedness  of the  Borrower and its  Subsidiaries  set
         forth  in  Schedule  8.1 (and  renewals,  refinancings  and  extensions
         thereof on terms and  conditions no less  favorable to such Person than
         such existing Indebtedness);

                  (c)  purchase money Indebtedness consisting of Capital Leases
         as permitted under Section 8.13;

                  (d) obligations of the Borrower or any of its  Subsidiaries in
         respect of Hedging  Agreements entered into in order to manage existing
         or  anticipated  interest  rate  or  exchange  rate  risks  and not for
         speculative purposes;

                  (e)  ntercompany Indebtedness arising out of loans and
         advances permitted under Section 8.6;

                  (f) in addition to the  Indebtedness  otherwise  permitted  by
         this Section 8.1, other Indebtedness hereafter incurred by the Borrower
         or  any  of its  Subsidiaries  in an  aggregate  amount  not to  exceed
         $300,000 at any time outstanding.

         8.2      Liens.

         The Credit Parties will not permit any Consolidated  Party to contract,
create,  incur,  assume or permit to exist any Lien with  respect  to any of its
Property, whether now owned or after acquired, except for Permitted Liens.

         8.3      Nature of Business.

         The  Credit  Parties  will  not  permit  any   Consolidated   Party  to
substantively  alter the character or conduct of the business  conducted by such
Person as of the Closing Date.

         8.4      Consolidation, Merger, Dissolution, etc.

         Except in connection with an Asset  Disposition  permitted by the terms
of Section 8.5, the Credit Parties will not permit any Consolidated Party to (a)
dissolve,  liquidate or wind up their affairs or enter into any  transaction  of
merger  or  consolidation;  provided,  however  that the  Borrower  may merge or
consolidate  with any Subsidiary so long as the Borrower shall be the continuing
or surviving  corporation or (b) acquire all or substantially all of the assets,
property  and/or  operations  of any  Person  which  is not a  Subsidiary  in an
aggregate amount in excess of $1,000,000 in any fiscal year; provided,  however,
that with respect to the 1999 fiscal year only, no Acquisitions shall be made by
any Consolidated Party.

         8.5      Asset Dispositions.

                                    116

<PAGE>


         The Credit Parties will not permit any  Consolidated  Party to make any
Asset  Disposition  (including,  without  limitation,  any  Sale  and  Leaseback
Transaction) other than Excluded Asset Dispositions unless (a) the consideration
paid  in  connection  therewith  is  cash  or  Cash  Equivalents,  (b)  if  such
transaction is a Sale and Leaseback  Transaction,  such transaction is permitted
by the terms of Section  8.12,  (c) the  aggregate  net book value of all of the
assets sold or  otherwise  disposed of by the  Consolidated  Parties in all such
transactions after the Closing Date shall not exceed $500,000,  and (d) no later
than 30 days prior to such Asset  Disposition,  the Agent and the Lenders  shall
have  received  a  certificate  of an  officer of the  Borrower  specifying  the
anticipated  or actual date of such Asset  Disposition,  briefly  describing the
assets to be sold or otherwise  disposed of and setting forth the net book value
of such assets,  the  aggregate  consideration  and the Net Cash  Proceeds to be
received  for such  assets  in  connection  with  such  Asset  Disposition,  and
thereafter  the  Borrower  shall,  within  the period of 30 days  following  the
consummation  of  such  Asset  Disposition  (with  respect  to  any  such  Asset
Disposition, the "Application Period"), apply (or cause to be applied) an amount
equal to the Net Cash Proceeds of such Asset  Disposition  to the  prepayment of
the Loans in accordance with the terms of Section 3.3(b)(iii).

         Upon a sale of assets or the sale of  Capital  Stock of a  Consolidated
Party permitted by this Section 8.5, the Agent shall (to the extent  applicable)
deliver to the  Borrower,  upon the  Borrower's  request  and at the  Borrower's
expense,  such documentation as is reasonably  necessary to evidence the release
of the Agent's  security  interest,  if any,  in such  assets or Capital  Stock,
including,  without  limitation,  amendments  or  terminations  of UCC financing
statements, if any, the return of stock certificates, if any, and the release of
such Subsidiary from all of its obligations, if any, under the Credit Documents.

         8.6      Investments.

         The  Credit  Parties  will not permit  any  Consolidated  Party to make
Investments in or to any Person, except for Permitted Investments.

         8.7      Restricted Payments.

         The Credit Parties will not permit any Consolidated  Party to, directly
or  indirectly,  declare,  order,  make  or set  apart  any  sum  for or pay any
Restricted  Payment,  except (a) to make  dividends  payable  solely in the same
class  of  Capital  Stock  of  such  Person  (b)  to  make  dividends  or  other
distributions   payable  to  the  Borrower   (directly  or  indirectly   through
Subsidiaries)  (c) to pay cash dividends with respect to preferred  stock of the
Borrower  issued  and  outstanding  as of the  Closing  Date in an amount not to
exceed $120,000  annually and (d) to repurchase  preferred stock of the Borrower
in an aggregate amount not to exceed $1,000,000 in each of the fiscal years 1998
and 1999 only.

         8.8      Transactions with Affiliates.

                                     117

<PAGE>


         Except for the  transactions  referenced  on Schedule  8.8,  the Credit
Parties will not permit any Consolidated  Party to enter into or permit to exist
any  transaction  or  series  of  transactions   with  any  officer,   director,
shareholder,  Subsidiary  or Affiliate of such Person other than (a) advances of
working  capital to any Credit  Party,  (b)  transfers of cash and assets to any
Credit Party,  (c)  transactions  permitted by Section 8.1, Section 8.4, Section
8.5, Section 8.6, or Section 8.7, (d) normal  compensation and  reimbursement of
expenses of officers  and  directors  and (e) except as  otherwise  specifically
limited in this Credit Agreement,  other  transactions which are entered into in
the  ordinary  course  of  such  Person's   business  on  terms  and  conditions
substantially  as  favorable  to such Person as would be  obtainable  by it in a
comparable  arms-length  transaction  with  a  Person  other  than  an  officer,
director, shareholder, Subsidiary or Affiliate.

         8.9      Fiscal Year; Organizational Documents.

         The Credit Parties will not permit any Consolidated Party to change its
fiscal  year or amend,  modify or  change  its  articles  of  incorporation  (or
corporate charter or other similar organizational  document) or bylaws (or other
similar document) without the prior written consent of the Required Lenders.

         8.10     Limitation on Restricted Actions.

         The Credit Parties will not permit any Consolidated Party to

                  (a)  directly  or  indirectly,  create or  otherwise  cause or
         suffer to exist or become  effective any  encumbrance or restriction on
         the ability of any such Person to (i) pay  dividends  or make any other
         distributions  to any Credit Party on its Capital Stock or with respect
         to any other interest or participation in, or measured by, its profits,
         (ii) pay any Indebtedness or other obligation owed to any Credit Party,
         (iii) make loans or advances to any Credit Party,  (iv) sell,  lease or
         transfer any of its  properties or assets to any Credit  Party,  or (v)
         act as a  Guarantor  and  pledge  its  assets  pursuant  to the  Credit
         Documents  or any  renewals,  refinancings,  exchanges,  refundings  or
         extension thereof, except (in respect of any of the matters referred to
         in  clauses  (i)-(v)  above)  for  such  encumbrances  or  restrictions
         existing under or by reason of (A) this Credit  Agreement and the other
         Credit Documents,  (B) applicable law or (C) any document or instrument
         governing  Indebtedness incurred pursuant to Section 8.1(c),  provided,
         however,  that any such restriction  contained  therein relates only to
         the asset or assets constructed or acquired in connection therewith; or

                  (b) enter  into,  assume or become  subject  to any  agreement
         prohibiting or otherwise  restricting the creation or assumption of any
         Lien upon its  properties  or assets,  whether  now owned or  hereafter
         acquired, or requiring the grant of any security for such obligation if
         security  is given for some other  obligation,  except (i)  pursuant to
         this Credit Agreement and the other Credit Documents, and (ii) pursuant
         to any document or instrument governing  Indebtedness incurred pursuant
         to  Section  8.1(c),  provided,  however,  that  any  such  restriction
         contained  therein  relates only to the asset or assets  constructed or
         acquired in connection therewith.

                                         118
<PAGE>


         8.11     Ownership of Subsidiaries.

         Notwithstanding  any other  provisions of this Credit  Agreement to the
contrary,  the Credit  Parties  will not permit  any  Consolidated  Party to (a)
permit any Person (other than the Borrower or any Wholly-Owned Subsidiary of the
Borrower) to own any Capital Stock of any Subsidiary of the Borrower, (b) permit
any Subsidiary of the Borrower to issue Capital Stock (except to the Borrower or
to a Wholly-Owned Subsidiary of the Borrower), (c) permit, create, incur, assume
or suffer to exist any Lien  thereon,  in each case except (i) except to qualify
directors  where required by applicable law or to satisfy other  requirements of
applicable  law with  respect  to the  ownership  of  Capital  Stock of  Foreign
Subsidiaries,  (ii) except as a result of or in connection  with a  dissolution,
merger or disposition of a Subsidiary permitted under Section 8.4 or Section 8.5
or (iii)  except for  Permitted  Liens and (d)  notwithstanding  anything to the
contrary contained in clause (b) above, permit any Subsidiary of the Borrower to
issue any shares of preferred Capital Stock.

         8.12     Sale Leasebacks.

         The Credit Parties will not permit any Consolidated  Party to, directly
or indirectly, become or remain liable as lessee or as guarantor or other surety
with respect to any lease, whether an Operating Lease or a Capital Lease, of any
Property  (whether  real,  personal or mixed),  whether  now owned or  hereafter
acquired,  (a) which such  Consolidated  Party has sold or  transferred or is to
sell or transfer to a Person which is not a Consolidated Party or (b) which such
Consolidated  Party  intends to use for  substantially  the same  purpose as any
other  Property  which  has been  sold or is to be sold or  transferred  by such
Consolidated  Party  to  another  Person  which is not a  Consolidated  Party in
connection with such lease.

         8.13     Lease Obligations.

         The Credit  Parties  will not permit  any  Consolidated  Party to enter
into,  assume or permit to exist any obligations  with respect to Capital Leases
or for the payment of rent under Operating Leases which in the aggregate for all
such  Persons in any fiscal year would be in excess of  $1,250,000  greater than
the amount existing as of the end of the immediately preceding fiscal year.


                                    SECTION 9

                                EVENTS OF DEFAULT

         9.1      Events of Default.

         An Event of  Default  shall  exist  upon the  occurrence  of any of the
following specified events (each an "Event of Default"):

                                    119

<PAGE>


                  (a)      Payment.  Any Credit Party shall

                           (i) default in the payment when due of any  principal
                  of any  of  the  Loans  or of  any  reimbursement  obligations
                  arising from drawings under Letters of Credit, or

                           (ii)  default,  and such default  shall  continue for
                  five (5) or more Business Days, in the payment when due of any
                  interest  on the  Loans  or on any  reimbursement  obligations
                  arising from drawings under Letters of Credit,  or of any Fees
                  or other  amounts  owing  hereunder,  under  any of the  other
                  Credit Documents or in connection herewith or therewith; or

                  (b) Representations. Any representation, warranty or statement
         made or deemed to be made by any  Credit  Party  herein,  in any of the
         other Credit Documents, or in any statement or certificate delivered or
         required to be delivered  pursuant hereto or thereto shall prove untrue
         in any  material  respect on the date as of which it was deemed to have
         been made; or

                  (c)      Covenants.  Any Credit Party shall

                           (i) default in the due  performance  or observance of
                  any term,  covenant or agreement  contained  in Sections  7.2,
                  7.9, 7.11, 7.12, 7.13 or 8.1 through 8.13, inclusive;

                           (ii) default in the due  performance or observance of
                  any term,  covenant or agreement contained in Sections 7.1(a),
                  (b), (c) or (d) and such default shall continue unremedied for
                  a  period  of  at  least  10  days  after  the  earlier  of  a
                  responsible  officer of a Credit Party  becoming aware of such
                  default or notice thereof by the Agent; or

                           (iii) default in the due performance or observance by
                  it of any  term,  covenant  or  agreement  (other  than  those
                  referred to in subsections (a), (b), (c)(i) or (c)(ii) of this
                  Section  9.1)  contained  in this  Credit  Agreement  and such
                  default shall continue  unremedied for a period of at least 30
                  days after the  earlier of a  responsible  officer of a Credit
                  Party  becoming aware of such default or notice thereof by the
                  Agent; or

                  (d) Other Credit Documents. (i) Any Credit Party shall default
         in the due performance or observance of any term, covenant or agreement
         in any of the other Credit  Documents  (subject to applicable  grace or
         cure  periods,  if any), or (ii) except as a result of or in connection
         with a dissolution,  merger or  disposition  of a Subsidiary  permitted
         under Section 8.4 or Section 8.5, any Credit  Document shall fail to be
         in full force and effect or to give the Agent  and/or the  Lenders  the
         Liens,  rights,  powers and privileges purported to be created thereby,
         or any Credit Party shall so state in writing; or

                                       120

<PAGE>


                  (e) Guaranties.  Except as the result of or in connection with
         a dissolution,  merger or disposition of a Subsidiary  permitted  under
         Section  8.4 or  Section  8.5,  the  guaranty  given  by any  Guarantor
         hereunder  (including  any  Additional  Credit  Party) or any provision
         thereof  shall cease to be in full force and effect,  or any  Guarantor
         (including any Additional  Credit Party) hereunder or any Person acting
         by or on  behalf  of  such  Guarantor  shall  deny  or  disaffirm  such
         Guarantor's  obligations  under such guaranty,  or any Guarantor  shall
         default in the due  performance or observance of any term,  covenant or
         agreement  on its part to be  performed  or  observed  pursuant  to any
         guaranty; or

                  (f)  Bankruptcy, etc.  Any Bankruptcy Event shall occur with
         respect to any Consolidated Party; or

                  (g)      Defaults under Other Agreements.

                           (i)  Any  Consolidated  Party  shall  default  in the
                  performance or observance  (beyond the applicable grace period
                  with respect  thereto,  if any) or any material  obligation or
                  condition   of  any   contract   or  lease   material  to  the
                  Consolidated Parties; or

                           (ii) With  respect to any  Indebtedness  (other  than
                  Indebtedness  outstanding  under  this  Credit  Agreement)  in
                  excess  of  $100,000  in the  aggregate  for the  Consolidated
                  Parties taken as a whole, (A) any Consolidated Party shall (1)
                  default in any payment  (beyond the  applicable  grace  period
                  with  respect  thereto,  if  any)  with  respect  to any  such
                  Indebtedness,  or (2)  the  occurrence  and  continuance  of a
                  default in the  observance  or  performance  relating  to such
                  Indebtedness  or  contained  in any  instrument  or  agreement
                  evidencing,  securing or relating thereto,  or any other event
                  or  condition  shall occur or condition  exist,  the effect of
                  which  default or other  event or  condition  is to cause,  or
                  permit, the holder or holders of such Indebtedness (or trustee
                  or agent  on  behalf  of such  holders)  to cause  (determined
                  without  regard  to  whether  any  notice  or lapse of time is
                  required),  any such  Indebtedness  to become due prior to its
                  stated  maturity;  or  (B)  any  such  Indebtedness  shall  be
                  declared due and payable, or required to be prepaid other than
                  by a regularly  scheduled  required  prepayment,  prior to the
                  stated maturity thereof; or

                  (h)  Judgments.  One or more  judgments  or  decrees  shall be
         entered  against one or more of the  Consolidated  Parties  involving a
         liability of $100,000 or more in the  aggregate (to the extent not paid
         or  fully   covered  by  insurance   provided  by  a  carrier  who  has
         acknowledged  coverage  and has the  ability to  perform)  and any such
         judgments or decrees shall not have been vacated,  discharged or stayed
         or bonded pending appeal within 30 days from the entry thereof; or

                                       121

<PAGE>


                  (i) ERISA. Any of the following events or conditions,  if such
         event or  condition  could  have a  Material  Adverse  Effect:  (i) any
         "accumulated  funding  deficiency,"  as such term is defined in Section
         302 of ERISA and Section 412 of the Code, whether or not waived,  shall
         exist with  respect to any Plan,  or any lien shall arise on the assets
         of any  Consolidated  Party or any ERISA Affiliate in favor of the PBGC
         or a Plan;  (ii) an ERISA Event  shall  occur with  respect to a Single
         Employer Plan, which is, in the reasonable opinion of the Agent, likely
         to result in the  termination  of such Plan for purposes of Title IV of
         ERISA; (iii) an ERISA Event shall occur with respect to a Multiemployer
         Plan or Multiple Employer Plan, which is, in the reasonable  opinion of
         the  Agent,  likely to result in (A) the  termination  of such Plan for
         purposes  of Title IV of ERISA,  or (B) any  Consolidated  Party or any
         ERISA Affiliate incurring any liability in connection with a withdrawal
         from,  reorganization of (within the meaning of Section 4241 of ERISA),
         or  insolvency  or (within the  meaning of Section  4245 of ERISA) such
         Plan; or (iv) any prohibited transaction (within the meaning of Section
         406 of ERISA  or  Section  4975 of the  Code) or  breach  of  fiduciary
         responsibility  shall occur which may subject any Consolidated Party or
         any ERISA Affiliate to any liability  under Sections 406, 409,  502(i),
         or 502(l) of ERISA or Section 4975 of the Code,  or under any agreement
         or other  instrument  pursuant to which any  Consolidated  Party or any
         ERISA  Affiliate  has agreed or is  required  to  indemnify  any person
         against any such liability; or

                  (j)      Ownership.  There shall occur a Change of Control.

                  (k)  Responsible  Officer.  Either of the following  events or
         conditions  shall occur:  (i) Joel A. Schwartz or Michael  Burris shall
         cease to be a  Responsible  Officer  of the  Borrower  or (ii)  Joel A.
         Schwartz or Michael  Burris  shall cease to be actively  engaged in the
         daily management and/or operations of the Borrower.

         9.2      Acceleration; Remedies.

         Upon the occurrence of an Event of Default,  and at any time thereafter
unless and until such Event of Default has been waived by the requisite  Lenders
(pursuant  to  the  voting  requirements  of  Section  11.6)  or  cured  to  the
satisfaction  of the  requisite  Lenders  (pursuant to the voting  procedures in
Section 11.6),  the Agent shall,  upon the request and direction of the Required
Lenders,  by written  notice to the  Credit  Parties  take any of the  following
actions:

                  (a)  Termination  of  Commitments.   Declare  the  Commitments
         terminated whereupon the Commitments shall be immediately terminated.

                                    122

<PAGE>


                  (b)  Acceleration.  Declare  the unpaid  principal  of and any
         accrued interest in respect of all Loans, any reimbursement obligations
         arising  from  drawings  under  Letters of Credit and any and all other
         indebtedness or obligations of any and every kind owing by the Borrower
         to the Agent and/or any of the Lenders  hereunder  to be due  whereupon
         the same shall be  immediately  due and  payable  without  presentment,
         demand,  protest or other  notice of any kind,  all of which are hereby
         waived by the Borrower.

                  (c)  Cash  Collateral.  Direct  the  Borrower  to pay (and the
         Borrower  agrees  that  upon  receipt  of  such  notice,  or  upon  the
         occurrence  of an  Event  of  Default  under  Section  9.1(f),  it will
         immediately pay) to the Agent additional cash, to be held by the Agent,
         for  the  benefit  of the  Lenders,  in a cash  collateral  account  as
         additional  security for the LOC  Obligations  in respect of subsequent
         drawings  under  all then  outstanding  Letters  of Credit in an amount
         equal to the  maximum  aggregate  amount  which may be drawn  under all
         Letters of Credits then outstanding.

                  (d)  Enforcement  of  Rights.  Enforce  any and all rights and
         interests  created and existing under the Credit  Documents  including,
         without  limitation,   all  rights  and  remedies  existing  under  the
         Collateral  Documents,  all rights and remedies against a Guarantor and
         all rights of set-off.

         Notwithstanding  the  foregoing,  if an Event of Default  specified  in
Section 9.1(f) shall occur, then the Commitments shall  automatically  terminate
and all Loans, all reimbursement obligations arising from drawings under Letters
of Credit, all accrued interest in respect thereof,  all accrued and unpaid Fees
and other  indebtedness  or  obligations  owing to the Agent  and/or  any of the
Lenders hereunder automatically shall immediately become due and payable without
the giving of any notice or other action by the Agent or the Lenders.


                                   SECTION 10

                                AGENCY PROVISIONS

         10.1     Appointment, Powers and Immunities.

                                    123

<PAGE>


         Each Lender hereby irrevocably appoints and authorizes the Agent to act
as its agent under this Credit  Agreement  and the other Credit  Documents  with
such powers and  discretion  as are  specifically  delegated to the Agent by the
terms of this Credit  Agreement  and the other Credit  Documents,  together with
such other powers as are reasonably incidental thereto. The Agent (which term as
used in this sentence and in Section 10.5 and the first sentence of Section 10.6
hereof shall include its  Affiliates and its own and its  Affiliates'  officers,
directors,   employees,   and  agents):   (a)  shall  not  have  any  duties  or
responsibilities  except those expressly set forth in this Credit  Agreement and
shall not be a trustee or fiduciary for any Lender; (b) shall not be responsible
to the Lenders for any recital, statement,  representation, or warranty (whether
written  or oral)  made in or in  connection  with any  Credit  Document  or any
certificate or other document referred to or provided for in, or received by any
of them under, any Credit Document, or for the value,  validity,  effectiveness,
genuineness, enforceability, or sufficiency of any Credit Document, or any other
document  referred to or  provided  for therein or for any failure by any Credit
Party or any other  Person to perform  any of its  obligations  thereunder;  (c)
shall not be  responsible  for or have any duty to  ascertain,  inquire into, or
verify the  performance  or  observance  of any  covenants or  agreements by any
Credit  Party or the  satisfaction  of any  condition or to inspect the property
(including the books and records) of any Credit Party or any of its Subsidiaries
or  Affiliates;  (d) shall not be required to initiate or conduct any litigation
or  collection  proceedings  under  any  Credit  Document;  and (e) shall not be
responsible  for any  action  taken  or  omitted  to be  taken by it under or in
connection  with any Credit  Document,  except for its own gross  negligence  or
willful misconduct.  The Agent may employ agents and attorneys-in-fact and shall
not be  responsible  for the  negligence  or  misconduct  of any such  agents or
attorneys-in-fact selected by it with reasonable care.

         10.2     Reliance by Agent.

         The Agent  shall be entitled  to rely upon any  certification,  notice,
instrument,   writing,  or  other  printed  communication  (including,   without
limitation,  any thereof by  telecopy)  believed by it to be genuine and correct
and to have been  signed,  sent or made by or on behalf of the proper  Person or
Persons,  and upon advice and statements of legal counsel (including counsel for
any Credit Party),  independent  accountants,  and other experts selected by the
Agent.  The Agent may deem and treat the payee of any Note as the holder thereof
for all  purposes  hereof  unless and until the Agent  receives  and  accepts an
Assignment and Acceptance executed in accordance with Section 11.3(b) hereof. As
to any matters not expressly  provided for by this Credit  Agreement,  the Agent
shall not be required to exercise any  discretion or take any action,  but shall
be required to act or to refrain from acting (and shall be fully protected in so
acting or refraining from acting) upon the instructions of the Required Lenders,
and such instructions shall be binding on all of the Lenders; provided, however,
that the Agent shall not be  required to take any action that  exposes the Agent
to personal  liability or that is contrary to any Credit  Document or applicable
law or unless 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 any such action.

         10.3     Defaults.

         The  Agent  shall  not be  deemed  to have  knowledge  or notice of the
occurrence  of a Default  or Event of  Default  unless  the  Agent has  received
written notice from a Lender or the Borrower specifying such Default or Event of
Default and stating that such notice is a "Notice of Default". In the event that
the Agent  receives  such a notice of the  occurrence  of a Default  or Event of
Default,  the Agent shall give prompt notice  thereof to the Lenders.  The Agent
shall  (subject to Section  10.2  hereof)  take such action with respect to such
Default or Event of Default as shall  reasonably  be  directed  by the  Required
Lenders.

         10.4     Rights as a Lender.

                                     124

<PAGE>


         With  respect to its  Commitment  and the Loans made by it, First Union
National  Bank (and any  successor  acting as Agent) in its capacity as a Lender
hereunder  shall have the same rights and powers  hereunder  as any other Lender
and may  exercise  the same as though it were not acting as the  Agent,  and the
term  "Lender"  or  "Lenders"  shall,  unless the context  otherwise  indicates,
include the Agent in its individual capacity. First Union National Bank (and any
successor  acting as Agent) and its  Affiliates  may (without  having to account
therefor to any Lender) accept  deposits from,  lend money to, make  investments
in, provide services to, and generally engage in any kind of lending,  trust, or
other business with any Credit Party or any of its Subsidiaries or Affiliates as
if it were not acting as Agent, and First Union National Bank (and any successor
acting as Agent) and its Affiliates may accept fees and other consideration from
any Credit  Party or any of its  Subsidiaries  or  Affiliates  for  services  in
connection with this Credit Agreement or otherwise without having to account for
the same to the Lenders.

         10.5     Indemnification.

         The Lenders agree to indemnify the Agent (to the extent not  reimbursed
under Section 11.5 hereof,  but without limiting the obligations of the Borrower
under such Section) ratably in accordance with their respective Commitments, for
any and all  liabilities,  obligations,  losses,  damages,  penalties,  actions,
judgments,  suits, costs, expenses (including attorneys' fees), or disbursements
of any  kind and  nature  whatsoever  that may be  imposed  on,  incurred  by or
asserted  against the Agent  (including by any Lender) in any way relating to or
arising out of any Credit Document or the transactions  contemplated  thereby or
any action  taken or omitted by the Agent  under any Credit  Document;  provided
that no Lender shall be liable for any of the foregoing to the extent they arise
from the gross negligence or willful misconduct of the Person to be indemnified.
Without  limitation of the foregoing,  each Lender agrees to reimburse the Agent
promptly upon demand for its ratable  share of any costs or expenses  payable by
the Borrower  under  Section  11.5, to the extent that the Agent is not promptly
reimbursed  for such costs and expenses by the Borrower.  The agreements in this
Section 10.5 shall survive the repayment of the Loans, LOC Obligations and other
obligations  under the Credit  Documents and the  termination of the Commitments
hereunder.

         10.6     Non-Reliance on Agent and Other Lenders.


                                    125
<PAGE>


         Each Lender agrees that it has,  independently  and without reliance on
the Agent or any other Lender, and based on such documents and information as it
has deemed  appropriate,  made its own credit analysis of the Credit Parties and
their  Subsidiaries and decision to enter into this Credit Agreement and that it
will, independently and without reliance upon 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 analysis  and  decisions in taking or not taking
action  under the Credit  Documents.  Except  for  notices,  reports,  and other
documents and information  expressly  required to be furnished to the Lenders by
the Agent  hereunder,  the Agent  shall not have any duty or  responsibility  to
provide any Lender with any credit or other information  concerning the affairs,
financial condition,  or business of any Credit Party or any of its Subsidiaries
or  Affiliates  that may come  into the  possession  of the  Agent or any of its
Affiliates.

         10.7     Successor Agent.

         The  Agent  may  resign at any time by  giving  notice  thereof  to the
Lenders and the Borrower. Upon any such resignation,  the Required Lenders shall
have the right to appoint a successor  Agent.  If no successor  Agent shall have
been  so  appointed  by the  Required  Lenders  and  shall  have  accepted  such
appointment  within thirty (30) days after the retiring Agent's giving of notice
of resignation, then the retiring Agent may, on behalf of the Lenders, appoint a
successor Agent which shall be a commercial bank organized under the laws of the
United  States of  America  having  combined  capital  and  surplus  of at least
$100,000,000.  Upon the acceptance of any  appointment  as Agent  hereunder by a
successor,  such successor shall thereupon succeed to and become vested with all
the rights, powers,  discretion,  privileges,  and duties of the retiring Agent,
and the  retiring  Agent  shall be  discharged  from its duties and  obligations
hereunder.  After any  retiring  Agent's  resignation  hereunder  as Agent,  the
provisions  of this  Section  10 shall  continue  in effect  for its  benefit in
respect of any actions taken or omitted to be taken by it while it was acting as
Agent.


                                   SECTION 11

                                  MISCELLANEOUS

         11.1     Notices.

         Except as otherwise  expressly  provided herein,  all notices and other
communications  shall  have been duly  given  and  shall be  effective  (a) when
delivered,  (b) when transmitted via telecopy (or other facsimile device) to the
number set out below,  (c) the Business Day  following the day on which the same
has been  delivered  prepaid  to a  reputable  national  overnight  air  courier
service,  or (d) the third  Business Day  following the day on which the same is
sent by certified  or  registered  mail,  postage  prepaid,  in each case to the
respective parties at the address,  in the case of the Borrower,  Guarantors and
the  Agent,  set forth  below,  and,  in the case of the  Lenders,  set forth on
Schedule  2.1(a),  or at such other address as such party may specify by written
notice to the other parties hereto:

         if to the Borrower or the Guarantors:

                  BENIHANA INC.
                  8685 N.W. 53rd Terrace
                  Miami, Florida  33166-4591
                  Attn:  Mr. Joel A. Schwartz
                  Telephone:  (305) 593-0770
                  Telecopy:   (305) 594-9492


                                 126
<PAGE>


         if to the Agent:

                  First Union National Bank
                  301 South College Street, DC-5
                  5th Floor
                  Charlotte, North Carolina  28288-0737
                  Attn:  Mr. Jorge Gonzalez
                  Telephone:  (704) 383-8461
                  Telecopy:   (704) 374-3300

         with a copy to:

                  First Union National Bank
                  First Union Financial Center - FL 6208
                  200 South Biscayne Blvd., 15th Floor
                  Miami, Florida 33131
                  Attn:  Ms. Carol F. Fine
                  Telephone:  (305) 789-4640
                  Telecopy:    (305) 789-4902

         11.2     Right of Set-Off; Adjustments.

         Upon the occurrence and during the continuance of any Event of Default,
each Lender (and each of its  Affiliates)  is hereby  authorized at any time and
from time to time, to the fullest extent  permitted by law, to set off and apply
any and all deposits (general or special, time or demand,  provisional or final)
at any time held and other indebtedness at any time owing by such Lender (or any
of its  Affiliates)  to or for the credit or the  account  of any  Credit  Party
against any and all of the obligations of such Person now or hereafter  existing
under this Credit Agreement, under the Notes, under any other Credit Document or
otherwise,  irrespective of whether such Lender shall have made any demand under
hereunder or thereunder  and although such  obligations  may be unmatured.  Each
Lender  agrees  promptly  to notify any  affected  Credit  Party  after any such
set-off and application made by such Lender; provided, however, that the failure
to  give  such  notice  shall  not  affect  the  validity  of such  set-off  and
application.  The rights of each Lender  under this Section 11.2 are in addition
to other rights and remedies  (including,  without  limitation,  other rights of
set-off) that such Lender may have.

         11.3     Benefit of Agreement.

                                  127

<PAGE>


                  (a) This Credit  Agreement  shall be binding upon and inure to
         the benefit of and be  enforceable  by the  respective  successors  and
         assigns of the parties hereto; provided that none of the Credit Parties
         may assign or transfer any of its  interests  and  obligations  without
         prior written consent of the Lenders;  provided further that the rights
         of each  Lender  to  transfer,  assign or grant  participations  in its
         rights and/or  obligations  hereunder  shall be limited as set forth in
         this Section 11.3.

                  (b) Each Lender may assign to one or more  Eligible  Assignees
         all or a portion  of its  rights  and  obligations  under  this  Credit
         Agreement  (including,  without  limitation,  all or a  portion  of its
         Loans, its Notes, and its Commitment); provided, however, that

                           (i)  Each such assignment shall be to an Eligible
                  Assignee;

                           (ii) except in the case of an  assignment  to another
                  Lender  or an  assignment  of all  of a  Lender's  rights  and
                  obligations  under this  Credit  Agreement,  any such  partial
                  assignment  shall be in an amount at least equal to $5,000,000
                  (or, if less,  the remaining  amount of the  Commitment  being
                  assigned by such Lender) or an integral multiple of $1,000,000
                  in excess thereof;

                           (iii) each such  assignment by a Lender shall be of a
                  constant,  and  not  varying,   percentage  of  its  Revolving
                  Commitment  and its Term Loan  Commitment and all other rights
                  and obligations under this Credit Agreement and the Notes; and

                           (iv) the parties to such assignment shall execute and
                  deliver  to the Agent for its  acceptance  an  Assignment  and
                  Acceptance  in the form of Exhibit  11.3(b)  hereto,  together
                  with any Note subject to such  assignment and a processing fee
                  of $3,500.

         Upon  execution,  delivery,  and  acceptance  of  such  Assignment  and
         Acceptance, the assignee thereunder shall be a party hereto and, to the
         extent of such assignment,  have the obligations,  rights, and benefits
         of a Lender  hereunder and the assigning Lender shall, to the extent of
         such  assignment,  relinquish  its  rights  and be  released  from  its
         obligations under this Credit  Agreement.  Upon the consummation of any
         assignment  pursuant to this Section 11.3(b),  the assignor,  the Agent
         and the  Borrower  shall  make  appropriate  arrangements  so that,  if
         required, new Notes are issued to the assignor and the assignee. If the
         assignee  is not  incorporated  under the laws of the United  States of
         America or a state  thereof,  it shall  deliver to the Borrower and the
         Agent  certification  as to exemption  from deduction or withholding of
         Taxes in accordance with Section 3.11.

                                      128

<PAGE>


                  (c) The Agent shall  maintain  at its  address  referred to in
         Section 11.1 a copy of each Assignment and Acceptance  delivered to and
         accepted  by it and a  register  for the  recordation  of the names and
         addresses of the Lenders and the Commitment of, and principal amount of
         the Loans owing to, each Lender from time to time (the "Register"). The
         entries  in the  Register  shall  be  conclusive  and  binding  for all
         purposes,  absent manifest error,  and the Borrower,  the Agent and the
         Lenders may treat each Person whose name is recorded in the Register as
         a Lender  hereunder  for all  purposes  of this Credit  Agreement.  The
         Register  shall be  available  for  inspection  by the  Borrower or any
         Lender at any  reasonable  time and from  time to time upon  reasonable
         prior notice.

                  (d) Upon its receipt of an Assignment and Acceptance  executed
         by the  parties  thereto,  together  with  any  Note  subject  to  such
         assignment and payment of the processing  fee, the Agent shall, if such
         Assignment and  Acceptance  has been completed and is in  substantially
         the form of Exhibit  11.3(b)  hereto,  (i) accept such  Assignment  and
         Acceptance,  (ii)  record  the  information  contained  therein  in the
         Register and (iii) give prompt notice thereof to the parties thereto.

                  (e) Each Lender may sell participations to one or more Persons
         in all or a portion  of its rights and  obligations  under this  Credit
         Agreement (including all or a portion of its Commitment and its Loans);
         provided, however, that (i) such Lender's obligations under this Credit
         Agreement shall remain unchanged,  (ii) such Lender shall remain solely
         responsible  to the other parties  hereto for the  performance  of such
         obligations,  (iii) the participant shall be entitled to the benefit of
         the yield protection provisions contained in Sections 3.7 through 3.12,
         inclusive, and the right of set-off contained in Section 11.2, and (iv)
         the  Borrower  shall  continue  to deal solely and  directly  with such
         Lender in connection with such Lender's  rights and  obligations  under
         this Credit  Agreement,  and such Lender shall retain the sole right to
         enforce the  obligations of the Borrower  relating to its Loans and its
         Notes and to  approve  any  amendment,  modification,  or waiver of any
         provision   of  this   Credit   Agreement   (other   than   amendments,
         modifications,  or waivers decreasing the amount of principal of or the
         rate at which interest is payable on such Loans or Notes, extending any
         scheduled  principal  payment  date or date  fixed for the  payment  of
         interest on such Loans or Notes, or extending its Commitment).

                  (f)  Notwithstanding  any  other  provision  set forth in this
         Credit  Agreement,  any Lender may at any time assign and pledge all or
         any portion of its Loans and its Notes to any Federal  Reserve  Bank as
         collateral security pursuant to Regulation A and any Operating Circular
         issued by such Federal Reserve Bank. No such  assignment  shall release
         the assigning Lender from its obligations hereunder.

                  (g) Any Lender may  furnish  any  information  concerning  the
         Borrower or any of its  Subsidiaries  in the  possession of such Lender
         from time to time to assignees and participants  (including prospective
         assignees and  participants),  subject,  however,  to the provisions of
         Section 11.14 hereof.

         11.4     No Waiver; Remedies Cumulative.

                                   129

<PAGE>


         No  failure  or  delay  on the  part  of the  Agent  or any  Lender  in
exercising  any right,  power or  privilege  hereunder or under any other Credit
Document and no course of dealing between the Agent or any Lender and any of the
Credit  Parties  shall  operate  as a waiver  thereof;  nor shall any  single or
partial exercise of any right,  power or privilege  hereunder or under any other
Credit Document  preclude any other or further  exercise thereof or the exercise
of any other right, power or privilege  hereunder or thereunder.  The rights and
remedies  provided  herein are  cumulative  and not  exclusive  of any rights or
remedies  which the Agent or any Lender would  otherwise  have.  No notice to or
demand on any Credit  Party in any case shall  entitle the Borrower or any other
Credit  Party to any other or  further  notice or  demand  in  similar  or other
circumstances  or  constitute a waiver of the rights of the Agent or the Lenders
to any other or further action in any circumstances without notice or demand.

         11.5     Expenses; Indemnification.

         (a) The Borrower  agrees to pay on demand all costs and expenses of the
Agent in connection  with the  syndication,  preparation,  execution,  delivery,
administration,  modification, and amendment of this Credit Agreement, the other
Credit Documents, and the other documents to be delivered hereunder,  including,
without  limitation,  the reasonable  fees and expenses of counsel for the Agent
(including the cost of internal  counsel) with respect  thereto and with respect
to  advising  the Agent as to its rights and  responsibilities  under the Credit
Documents.  The Borrower  further agrees to pay on demand all costs and expenses
of the Agent and the Lenders, if any (including, without limitation,  reasonable
attorneys'  fees and expenses and the cost of internal  counsel),  in connection
with the  enforcement  (whether  through  negotiations,  legal  proceedings,  or
otherwise)  of the Credit  Documents  and the other  documents  to be  delivered
hereunder.

                                     130

<PAGE>


         (b) The Borrower  agrees to indemnify  and hold  harmless the Agent and
each  Lender  and  each of  their  Affiliates  and  their  respective  officers,
directors,  employees,  agents, and advisors (each, an "Indemnified Party") from
and  against  any and all  claims,  damages,  losses,  liabilities,  costs,  and
expenses (including, without limitation, reasonable attorneys' fees) that may be
incurred by or asserted or awarded against any  Indemnified  Party, in each case
arising  out of or in  connection  with  or by  reason  of  (including,  without
limitation,  in connection with any investigation,  litigation, or proceeding or
preparation of defense in connection therewith) the Credit Documents, any of the
transactions  contemplated  herein or the actual or proposed use of the proceeds
of the Loans, except to the extent such claim, damage, loss, liability, cost, or
expense is found in a final,  non-appealable  judgment  by a court of  competent
jurisdiction to have resulted from such Indemnified  Party's gross negligence or
willful  misconduct.  In the  case  of an  investigation,  litigation  or  other
proceeding to which the indemnity in this Section 11.5 applies,  such  indemnity
shall be effective whether or not such  investigation,  litigation or proceeding
is brought by the  Borrower,  its  directors,  shareholders  or  creditors or an
Indemnified  Party or any other Person or any  Indemnified  Party is otherwise a
party  thereto  and  whether  or not the  transactions  contemplated  hereby are
consummated.  The Borrower agrees not to assert any claim against the Agent, any
Lender, any of their Affiliates, or any of their respective directors, officers,
employees,  attorneys,  agents,  and advisers,  on any theory of liability,  for
special,  indirect,  consequential,  or  punitive  damages  arising  out  of  or
otherwise relating to the Credit Documents, any of the transactions contemplated
herein or the actual or proposed use of the proceeds of the Loans.

         (c) Without  prejudice  to the  survival of any other  agreement of the
Borrower hereunder,  the agreements and obligations of the Borrower contained in
this Section 11.5 shall survive the repayment of the Loans,  LOC Obligations and
other  obligations  under  the  Credit  Documents  and  the  termination  of the
Commitments hereunder.

         11.6     Amendments, Waivers and Consents.

         Neither this Credit  Agreement nor any other Credit Document nor any of
the terms  hereof or thereof  may be amended,  changed,  waived,  discharged  or
terminated unless such amendment, change, waiver, discharge or termination is in
writing entered into by, or approved in writing by, the Required Lenders and the
Borrower, provided, however, that:

                  (a)      without the consent of each Lender affected thereby,

                        (i) extend the final maturity of any Loan or the time of
                  payment  of  any  reimbursement  obligation,  or  any  portion
                  thereof,  arising from drawings  under  Letters of Credit,  or
                  extend  or waive any  Principal  Amortization  Payment  of any
                  Loan, or any portion thereof,

                       (ii)  reduce  the rate or extend  the time of  payment of
                  interest (other than as a result of waiving the  applicability
                  of any  post-default  increase in interest  rates)  thereon or
                  Fees hereunder,

                      (iii) reduce or waive the principal  amount of any Loan or
                  of  any  reimbursement  obligation,  or any  portion  thereof,
                  arising from drawings under Letters of Credit,

                       (iv) increase the  Commitment of a Lender over the amount
                  thereof  in effect  (it being  understood  and  agreed  that a
                  waiver  of any  Default  or  Event  of  Default  or  mandatory
                  reduction in the Commitments  shall not constitute a change in
                  the terms of any Commitment of any Lender),

                        (v)  except as the result of or in connection with an
                  Asset Disposition permitted by Section 8.5, release all or
                  substantially all of the Collateral,

                       (vi)  except  as the  result of or in  connection  with a
                  dissolution,  merger or disposition of a Subsidiary  permitted
                  under Section 8.4, release the Borrower or  substantially  all
                  of the  other  Credit  Parties  from its or their  obligations
                  under the Credit Documents,

                                       131

<PAGE>


                      (vii) except amend,  modify or waive any provision of this
                  Section 11.6 or Section 3.6, 3.7, 3.8, 3.9, 3.10,  3.11, 3.12,
                  3.13, 3.14, 9.1(a), 11.2, 11.3, 11.5 or 11.9,

                     (viii) reduce any percentage specified in, or otherwise
                  modify, the definition of
                  Required Lenders, or

                       (ix)  consent  to  the  assignment  or  transfer  by  the
                  Borrower  or all or  substantially  all  of the  other  Credit
                  Parties of any of its or their  rights and  obligations  under
                  (or in respect of) the Credit  Documents  except as  permitted
                  thereby;

                  (b)  without the consent of the Agent, no provision of Section
                  10 may be amended;

                  (c)  without the consent of the Issuing Lender, no provision
                  of Section 2.2 may be amended.

         Notwithstanding  the  fact  that  the  consent  of all the  Lenders  is
         required in certain  circumstances  as set forth above, (x) each Lender
         is  entitled  to  vote  as  such  Lender  sees  fit on  any  bankruptcy
         reorganization   plan  that   affects   the  Loans,   and  each  Lender
         acknowledges  that the provisions of Section  1126(c) of the Bankruptcy
         Code supersedes the unanimous  consent  provisions set forth herein and
         (y) the  Required  Lenders may  consent to allow a Credit  Party to use
         cash   collateral   in  the  context  of  a  bankruptcy  or  insolvency
         proceeding.

         11.7     Counterparts.

         This Credit  Agreement  may be executed in any number of  counterparts,
each of which when so executed and  delivered  shall be an original,  but all of
which shall constitute one and the same instrument. It shall not be necessary in
making  proof of this Credit  Agreement  to produce or account for more than one
such counterpart for each of the parties hereto. Delivery by facsimile by any of
the parties hereto of an executed  counterpart of this Credit Agreement shall be
as effective as an original  executed  counterpart  hereof and shall be deemed a
representation that an original executed counterpart hereof will be delivered.

         11.8     Headings.

         The headings of the sections  and  subsections  hereof are provided for
convenience  only and shall not in any way affect the meaning or construction of
any provision of this Credit Agreement.

         11.9     Survival.

                                     132

<PAGE>


         All indemnities set forth herein,  including,  without  limitation,  in
Section  2.2(i),  3.11,  3.12,  10.5 or 11.5 shall  survive  the  execution  and
delivery of this Credit Agreement,  the making of the Loans, the issuance of the
Letters  of  Credit,  the  repayment  of the Loans,  LOC  Obligations  and other
obligations  under the Credit  Documents and the  termination of the Commitments
hereunder,  and all  representations  and warranties  made by the Credit Parties
herein  shall  survive  delivery  of the  Notes  and  the  making  of the  Loans
hereunder.

         11.10    Governing Law; Submission to Jurisdiction; Venue.

                  (a) THIS CREDIT  AGREEMENT AND THE OTHER CREDIT  DOCUMENTS AND
         THE RIGHTS AND  OBLIGATIONS  OF THE PARTIES  HEREUNDER  AND  THEREUNDER
         SHALL BE GOVERNED BY AND CONSTRUED AND  INTERPRETED IN ACCORDANCE  WITH
         THE  LAWS OF THE  STATE  OF  [NORTH  CAROLINA].  Any  legal  action  or
         proceeding  with  respect to this Credit  Agreement or any other Credit
         Document may be brought in the courts of the State of North Carolina in
         Mecklenburg County, or of the United States for the Western District of
         North  Carolina,   and,  by  execution  and  delivery  of  this  Credit
         Agreement,  each of the Credit Parties hereby  irrevocably  accepts for
         itself and in respect of its property,  generally and  unconditionally,
         the  nonexclusive  jurisdiction  of such  courts.  Each  of the  Credit
         Parties further  irrevocably  consents to the service of process out of
         any of the  aforementioned  courts in any such action or  proceeding by
         the mailing of copies thereof by registered or certified mail,  postage
         prepaid,  to it at the address set out for notices  pursuant to Section
         11.1,  such  service  to become  effective  three (3) days  after  such
         mailing.  Nothing  herein  shall  affect  the right of the Agent or any
         Lender to serve  process  in any other  manner  permitted  by law or to
         commence legal  proceedings or to otherwise  proceed against any Credit
         Party in any other jurisdiction.

                  (b) Each of the Credit Parties hereby  irrevocably  waives any
         objection  which it may now or hereafter have to the laying of venue of
         any  of the  aforesaid  actions  or  proceedings  arising  out of or in
         connection  with this Credit  Agreement  or any other  Credit  Document
         brought in the courts  referred to in  subsection  (a) above and hereby
         further irrevocably waives and agrees not to plead or claim in any such
         court that any such action or proceeding  brought in any such court has
         been brought in an inconvenient forum.

                  (c) TO THE EXTENT  PERMITTED  BY LAW,  EACH OF THE AGENT,  THE
         LENDERS,  THE BORROWER AND THE CREDIT PARTIES HEREBY IRREVOCABLY WAIVES
         ALL RIGHT TO TRIAL BY JURY IN ANY ACTION,  PROCEEDING  OR  COUNTERCLAIM
         ARISING OUT OF OR RELATING TO THIS CREDIT  AGREEMENT,  ANY OF THE OTHER
         CREDIT DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY.

         11.11    Severability.

                                       133

<PAGE>


         If any  provision of any of the Credit  Documents is  determined  to be
illegal,  invalid or unenforceable,  such provision shall be fully severable and
the  remaining  provisions  shall  remain in full  force and effect and shall be
construed  without  giving  effect  to the  illegal,  invalid  or  unenforceable
provisions.

         11.12    Entirety.

         This  Credit  Agreement   together  with  the  other  Credit  Documents
represent the entire agreement of the parties hereto and thereto,  and supersede
all prior agreements and understandings,  oral or written, if any, including any
commitment  letters or  correspondence  relating to the Credit  Documents or the
transactions contemplated herein and therein.

         11.13    Binding Effect; Termination.

                  (a) This Credit  Agreement shall become effective at such time
         on or after the  Closing  Date when it shall have been  executed by the
         Borrower,  the  Guarantors  and the  Agent,  and the Agent  shall  have
         received  copies  hereof  (telefaxed or  otherwise)  which,  when taken
         together,  bear the  signatures  of each Lender,  and  thereafter  this
         Credit  Agreement shall be binding upon and inure to the benefit of the
         Borrower,  the  Guarantors,   the  Agent  and  each  Lender  and  their
         respective successors and assigns.

                  (b) The term of this Credit Agreement shall be until no Loans,
         LOC Obligations or any other amounts payable  hereunder or under any of
         the other  Credit  Documents  shall remain  outstanding,  no Letters of
         Credit shall be outstanding,  all of the Credit Party  Obligations have
         been irrevocably satisfied in full and all of the Commitments hereunder
         shall have expired or been terminated.

         11.14    Source of Funds.

         Each of the Lenders hereby represents and warrants to the Borrower that
at least one of the following statements is an accurate representation as to the
source  of funds to be used by such  Lender  in  connection  with the  financing
hereunder:

                  (a) no part of such funds constitutes  assets allocated to any
         separate  account  maintained  by such  Lender  in which  any  employee
         benefit plan (or its related trust) has any interest;

                  (b) to the  extent  that  any part of such  funds  constitutes
         assets  allocated to any separate  account  maintained  by such Lender,
         such Lender has  disclosed to the  Borrower  the name of each  employee
         benefit  plan  whose  assets in such  account  exceed  10% of the total
         assets  of such  account  as of the  date of such  purchase  (and,  for
         purposes of this subsection (b), all employee  benefit plans maintained
         by the same employer or employee organization are deemed to be a single
         plan);

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                  (c) to the  extent  that  any part of such  funds  constitutes
         assets  of an  insurance  company's  general  account,  such  insurance
         company has complied with all of the  requirements  of the  regulations
         issued under Section 401(c)(1)(A) of ERISA; or

                  (d)  such  funds  constitute  assets  of one or more  specific
         benefit  plans  which  such  Lender  has  identified  in writing to the
         Borrower.

As used in this Section 11.14,  the terms "employee  benefit plan" and "separate
account" shall have the respective  meanings assigned to such terms in Section 3
of ERISA.

         11.15    Conflict.

         To the extent  that there is a conflict  or  inconsistency  between any
provision hereof, on the one hand, and any provision of any Credit Document,  on
the other hand, this Credit Agreement shall control.

         11.16    Arbitration; Consent to Jurisdiction and Service of Process.

         (a) Upon  demand  of any party  hereto,  whether  made  before or after
institution of any judicial action,  any dispute,  claim or controversy  arising
out of or connected herewith or with the Credit Documents  ("Disputes") shall be
resolved  by binding  arbitration  as provided  herein.  Disputes  may  include,
without limitation, tort claims, counterclaims,  claims brought as class actions
and claims  arising  herefrom or from Credit  Documents  executed in the future.
Arbitration  shall  be  conducted  under  the  Commercial   Financial   Disputes
Arbitration  Rules  (the  "Arbitration   Rules")  of  the  American  Arbitration
Association  and Title 9 of the U.S.  Code.  All  arbitration  hearings shall be
conducted in Charlotte,  Mecklenburg County, North Carolina, or such other place
as agreed to in writing by the parties. A judgment upon the award may be entered
in any court having  jurisdiction,  and all decisions  shall be in writing.  The
panel from which all  arbitrators  are  selected  shall be comprised of licensed
attorneys having at least ten years' experience  representing parties in secured
lending transactions.  Notwithstanding the foregoing, this arbitration provision
does not apply to disputes under or related to interest protection agreements.

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         (b) Notwithstanding the preceding binding  arbitration  provision,  the
Agent,  on  behalf  of the  Lenders,  preserves  certain  remedies  that  may be
exercised during a Dispute. The Agent, on behalf of the Lenders,  shall have the
right to proceed in any court of proper jurisdiction or by self help to exercise
or prosecute the following remedies, as applicable:  (i) all rights to foreclose
against any real or personal property or other security by exercising a power of
sale granted in the Credit Documents or under applicable law, (ii) all rights of
self help  including  peaceful  occupation  of real  property and  collection of
rents,  set-off and peaceful  possession of personal  property,  (iii) obtaining
provisional or ancillary  remedies including  injunctive relief,  sequestration,
garnishment,  attachment and appointment of receiver,  (iv) when  applicable,  a
judgment by confession of judgment and (v) other remedies. Preservation of these
remedies does not limit the power of an  arbitrator  to grant  similar  remedies
that may be requested by a party in a Dispute.

         (c) By  execution  and delivery of this Credit  Agreement,  each of the
parties  hereto  accepts,  for itself  and in  connection  with its  properties,
generally and unconditionally,  the non-exclusive  jurisdiction  relating to any
arbitration  proceedings  conducted  under the  Arbitration  Rules in Charlotte,
Mecklenburg  County,  North Carolina and  irrevocably  agrees to be bound by any
final judgment  rendered  thereby in connection with this Credit  Agreement from
which no appeal  has been  taken or is  available.  Each of the  parties  hereto
irrevocably  agrees  that all  process in any such  arbitration  proceedings  or
otherwise  may be effected by mailing a copy thereof by  registered or certified
mail (or any substantially  similar form of mail), postage prepaid, to it at its
address set forth in Section  11.1 or at such other  address of which such party
shall  have  been  notified   pursuant   thereto,   such  service  being  hereby
acknowledged  by each party hereto to be effective and binding  service in every
respect. Each party hereto irrevocably waives any objection,  including, without
limitation,  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
such action or proceeding in any such jurisdiction.  Nothing herein shall affect
the right to serve  process in any other manner  permitted by law or shall limit
the right of any party to bring  proceedings  against the  Borrower or any party
hereto  in any  court  or  pursuant  to  arbitration  proceedings  in any  other
jurisdiction.




                                      136

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         IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart
of this Credit  Agreement to be duly executed and delivered as of the date first
above written.

BORROWER:                                   BENIHANA INC.,
                                            a Delaware corporation


                                            By:----------------------
                                            Joel A. Schwartz
                                            President


SUBSIDIARY
GUARANTORS:                                 BENIHANA NATIONAL CORP.,
                                            a Delaware corporation

                                            BENIHANA ENCINO CORP.,
                                            a California corporation

                                            BENIHANA MARINA CORP.,
                                            a California corporation

                                            TEPPAN RESTAURANTS LTD.,
                                            a California corporation

                                            BENIHANA BETHESDA CORP.,
                                            a New York corporation

                                            BENIHANA INTERNATIONAL INC.,
                                            a Delaware corporation

                                            NOODLE TIME INC.,
                                            a Florida corporation

                                            BENIHANA NEW YORK CORP.,
                                            a Delaware corporation

                                            BENIHANA LOMBARD CORP.,
                                            a Illinois corporation

                                            BIG SPLASH KENDALL CORP.,
                                            a Delaware corporation

                                            BENIHANA OF PUENTE HILLS CORP.,
                                            a Delaware corporation


                                    137
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                                            BENIHANA ORLANDO CORP.,
                                            a Delaware corporation

                                            BENIHANA SCHAUMBURG CORP.,
                                            a Delaware corporation

                                            BENIHANA SUNRISE CORPORATION,
                                            a Delaware corporation

                                            BENIHANA BRICKELL STATION CORP.,
                                            a Delaware corporation

                                            BENIHANA STATE & ELM CORP.,
                                            a Delaware corporation

                                            BENIHANA ONTARIO CORP.,
                                            a Delaware corporation

                                            BENIHANA DEVELOPMENT CORP.,
                                            a Delaware corporation

                                            RUDY'S RESTAURANT GROUP, INC.,
                                            a Nevada corporation

                                            THE SAMURAI, INC.,
                                            a New York corporation

                                            MAXWELL'S INTERNATIONAL INC.,
                                            a Delaware corporation

                                            RUDY'S SIRLOIN STEAKBURGERS, INC.,
                                            a Delaware corporation

                                            By:
                                            Joel A. Schwartz
                                            Executive Vice President

                                            BENIHANA NATIONAL OF FLORIDA
                                            CORP., a Delaware corporation

                                            By:--------------------------
                                            Joel A. Schwartz
                                            President

                                  138
<PAGE>


                                            BENIHANA OF TEXAS, INC.,
                                            a Texas corporation


                                            By:--------------------------
                                            Joel A. Schwartz
                                            Authorized Agent


                                   139
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 LENDERS:                             FIRST NATIONAL BANK,
                                      individually in its capacity as a Lender
                                      and in its capacity as Agent


                                       By:-----------------------------
                                       Jorge A. Gonzalez
                                       Senior Vice President



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