Exhibit 10.17





                                CREDIT AGREEMENT


                                      among


                              MOVIE GALLERY, INC.,


                            THE LENDERS NAMED HEREIN,


                                       and


                           FIRST UNION NATIONAL BANK,
               as Agent, as Issuing Lender and as Swingline Lender


                            Revolving Credit Facility


                                   Arranged by
                           FIRST UNION CAPITAL MARKETS
                   A division of Wheat First Securities, Inc.


                           Dated as of January 7, 1999



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                                TABLE OF CONTENTS

                                                                          Page

RECITALS .....................................................................1

                                    ARTICLE I

                                   DEFINITIONS

1.1  Defined Terms............................................................1
1.2  Accounting Terms........................................................19
1.3  Other Terms; Construction...............................................19

                                   ARTICLE II

                          AMOUNT AND TERMS OF THE LOANS

2.1  Commitments; Loans......................................................20
2.2  Borrowings..............................................................20
2.3  Disbursements; Funding Reliance; Domicile of Loans......................23
2.4  Notes...................................................................24
2.5  Termination and Reduction of Commitments and Swingline Commitment.......25
2.6  Voluntary and Mandatory Payments and Prepayments........................25
2.7  Interest................................................................27
2.8  Fees....................................................................29
2.9  Interest Periods........................................................29
2.10 Conversions and Continuations...........................................30
2.11 Method of Payments; Computations........................................31
2.12 Recovery of Payments....................................................32
2.13 Use of Proceeds.........................................................33
2.14 Pro Rata Treatment; Sharing of Payments.................................33
2.15 Increase of the Aggregate Commitments...................................34
2.16 Increased Costs; Change in Circumstances; Illegality; etc...............34
2.17 Taxes ..................................................................36
2.18 Compensation............................................................38

                                  ARTICLE III

                               LETTERS OF CREDIT

3.1  Issuance................................................................38
3.2  Notices.................................................................39
3.3  Participations..........................................................40
3.4  Reimbursement...........................................................40
3.5  Payment by Revolving Loans..............................................40
3.6  Payment to Lenders......................................................41

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<PAGE>

3.7  Obligations Absolute....................................................41
3.8  Cash Collateral Account.................................................42
3.9  Effectiveness...........................................................43

                                   ARTICLE IV

                            CONDITIONS OF BORROWING

4.1  Conditions of Initial Borrowing.........................................43
4.2  Conditions of All Borrowings............................................46

                                   ARTICLE V

                         REPRESENTATIONS AND WARRANTIES

5.1  Corporate Organization and Power........................................47
5.2  Authorization; Enforceability...........................................47
5.3  No Violation............................................................47
5.4  Governmental Authorization; Permits.....................................48
5.5  Litigation..............................................................48
5.6  Taxes...................................................................48
5.7  Subsidiaries............................................................48
5.8  Full Disclosure.........................................................49
5.9  Margin Regulations......................................................49
5.10 No Material Adverse Change..............................................49
5.11 Financial Matters.......................................................49
5.12 Ownership of Properties.................................................50
5.13 ERISA ..................................................................50
5.14 Environmental Matters...................................................50
5.15 Compliance With Laws....................................................51
5.16 Regulated Industries....................................................51
5.17 Insurance...............................................................51
5.18 Material Contracts......................................................51
5.19 Security Documents......................................................52

                                   ARTICLE VI

                             AFFIRMATIVE COVENANTS

6.1  Financial Statements....................................................52
6.2  Other Business and Financial Information................................53
6.3  Corporate Existence; Franchises; Maintenance of Properties..............55
6.4  Compliance with Laws....................................................55
6.5  Payment of Obligations..................................................55
6.6  Insurance...............................................................56
6.7  Maintenance of Books and Records; Inspection............................56
6.8  Interest Rate Protection................................................56
  

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<PAGE>

6.9  Permitted Acquisitions..................................................56
6.10 Creation or Acquisition of Subsidiaries.................................58
6.11 Further Assurances......................................................59

                                  ARTICLE VII

                              FINANCIAL COVENANTS

7.1  Leverage Ratio..........................................................59
7.2  Interest Coverage Ratio.................................................59
7.3  Fixed Charge Coverage Ratio.............................................60
7.4  Consolidated Net Worth..................................................60

                                  ARTICLE VIII

                               NEGATIVE COVENANTS

8.1  Merger; Consolidation...................................................60
8.2  Indebtedness............................................................61
8.3  Liens...................................................................62
8.4  Disposition of Assets...................................................63
8.5  Investments.............................................................64
8.6  Restricted Payments.....................................................65
8.7  Transactions with Affiliates............................................66
8.9  Lines of Business.......................................................66
8.10 Limitation on Certain Restrictions......................................66
8.11 Fiscal Periods..........................................................66
8.12 Accounting Changes......................................................67

                                   ARTICLE IX

                               EVENTS OF DEFAULT

9.1  Events of Default.......................................................67
9.2  Remedies: Termination of Commitments, Acceleration, etc.................70
9.3  Remedies: Set-Off.......................................................70

                                   ARTICLE X

                                   THE AGENT

10.1  Appointment............................................................71
10.2  Nature of Duties.......................................................71
10.3  Exculpatory Provisions.................................................51
10.4  Reliance by Agent......................................................72
10.5  Non-Reliance on Agent and Other Lenders................................72
10.6  Notice of Default......................................................73

                                      iii


<PAGE>

10.7  Indemnification........................................................73
10.8  The Agent in its Individual Capacity...................................73
10.9  Successor Agent........................................................74
10.10 Collateral Matters.....................................................74

                                   ARTICLE XI

                                 MISCELLANEOUS

11.1  Fees and Expenses......................................................71
11.2  Indemnification........................................................75
11.3  Governing Law; Consent to Jurisdiction.................................76
11.4  Arbitration; Preservation and Limitation of Remedies...................77
11.5  Notices................................................................78
11.6  Amendments, Waivers, etc...............................................79
11.7  Assignments, Participations............................................79
11.8  No Waiver..............................................................82
11.9  Successors and Assigns. ...............................................82
11.10 Survival...............................................................82
11.11 Severability...........................................................82
11.12 Construction...........................................................83
11.13 Confidentiality........................................................83
11.14 Counterparts...........................................................83
11.15 Entire Agreement.......................................................83


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<PAGE>



                                    EXHIBITS

Exhibit A-1         Form of Revolving  Credit Note
Exhibit A-2         Form of  Swingline  Note
Exhibit B-1         Form of Notice of Revolving  Borrowing
Exhibit B-2         Form of Notice of Swingline  Borrowing
Exhibit B-3         Form of  Notice  of  Conversion/Continuation
Exhibit B-4         Form of Letter of Credit  Notice
Exhibit C           Form of  Assignment  and Acceptance
Exhibit D           Form of  Compliance  Certificate
Exhibit E           Form of Pledge Agreement
Exhibit F           Form of Subsidiaries Guaranty



                                   SCHEDULES

Schedule 5.6        Taxes
Schedule 5.7        Subsidiaries
Schedule 5.14       Environmental Matters
Schedule 5.17       Insurance
Schedule 8.2        Indebtedness
Schedule 8.3        Liens
Schedule 8.5        Investments
Schedule 8.7        Transactions with Affiliates
Schedule 8.10       Fiscal Periods




                                       v




<PAGE>


                                CREDIT AGREEMENT


      THIS  CREDIT  AGREEMENT,  dated  as of the  7th  of  January,  1999  (this
"Agreement"), is made among MOVIE GALLERY, INC., a Delaware corporation with its
principal offices in Dothan,  Alabama (the "Borrower"),  the banks and financial
institutions  listed on the signature pages hereof or that become parties hereto
after the date hereof  (collectively,  the "Lenders"),  and FIRST UNION NATIONAL
BANK ("First Union"), as agent for the Lenders (in such capacity,  the "Agent"),
as issuer of the Letters of Credit (in such capacity, the "Issuing Lender"), and
as maker of the Swingline Loans (in such capacity, the "Swingline Lender").


                                    RECITALS

      A. The  Borrower  has  requested  that the Lenders  make  available to the
Borrower a revolving credit facility in the initial  aggregate  principal amount
of $65,000,000. The Borrower will use the proceeds of this facility to refinance
certain existing indebtedness,  to pay or reimburse certain fees and expenses in
connection  herewith and therewith,  to finance  certain  acquisitions,  and for
working  capital and general  corporate  purposes,  all as more fully  described
herein.

      B. The Lenders are willing to make available to the Borrower the revolving
credit  facility  described above subject to and on the terms and conditions set
forth in this Agreement.

                                    AGREEMENT

      NOW, THEREFORE,  in consideration of the mutual provisions,  covenants and
agreements herein contained, the parties hereto hereby agree as follows:

                                    ARTICLE I

                                   DEFINITIONS

      1.1 Defined  Terms.  For  purposes of this  Agreement,  in addition to the
terms defined elsewhere herein,  the following terms shall have the meanings set
forth below (such  meanings to be equally  applicable to the singular and plural
forms thereof):

      "Account  Designation Letter" shall mean a letter from the Borrower to the
Agent, duly completed and signed by an Authorized Officer of the Borrower and in
form and substance  satisfactory to the Agent,  listing any one or more accounts
to which the  Borrower  may from time to time  request  the Agent to forward the
proceeds of any Loans made hereunder.

      "Acquisition"   shall   mean  any   transaction   or  series  of   related
transactions,  consummated  on or after the Closing  Date, by which the Borrower
directly, or indirectly through one or more Subsidiaries, (i) acquires any going
business,  or all or  substantially  all of the assets,  of any Person,  whether

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<PAGE>

through purchase of assets, merger or otherwise,  or (ii) acquires securities or
other  ownership  interests of any Person having at least a majority of combined
voting power of the then outstanding  securities or other ownership interests of
such Person.

      "Acquisition Amount" shall mean, with respect to any Acquisition,  the sum
(without  duplication)  of (i) the amount of cash paid by the  Borrower  and its
Subsidiaries in connection with such Acquisition,  (ii) the Fair Market Value of
all  capital  stock of the  Borrower  issued  or given in  connection  with such
Acquisition, (iii) the amount (determined by using the face amount or the amount
payable at maturity, whichever is greater) of all Indebtedness incurred, assumed
or  acquired  by the  Borrower  and its  Subsidiaries  in  connection  with such
Acquisition,  (iv) all additional purchase price amounts in connection with such
Acquisition in the form of earnouts and other contingent obligations that should
be  recorded  as a  liability  on the  balance  sheet  of the  Borrower  and its
Subsidiaries or expensed,  in either event in accordance with Generally Accepted
Accounting  Principles,  Regulation  S-X under the  Securities  Act of 1933,  as
amended,  or any  other  rule  or  regulation  of the  Securities  and  Exchange
Commission,  (v) all  amounts  paid in  respect  of  covenants  not to  compete,
consulting  agreements and other  affiliated  contracts in connection  with such
Acquisition,  (vi) the amount of all  transaction  fees and expenses  (including
without limitation legal, accounting and finders' fees and expenses) incurred by
the Borrower and its  Subsidiaries in connection with such Acquisition and (vii)
the aggregate fair market value of all other consideration given by the Borrower
and its Subsidiaries in connection with such Acquisition.

      "Adjusted Base Rate" shall mean, at any time with respect to any Base Rate
Loan, a rate per annum equal to the Base Rate as in effect at such time plus the
applicable Margin Percentage as in effect at such time.

      "Adjusted  LIBOR Rate" shall mean,  at any time with  respect to any LIBOR
Loan,  a rate per annum  equal to the LIBOR  Rate as in effect at such time plus
the applicable Margin Percentage as in effect at such time.

      "Agent" shall mean First Union,  in its capacity as Agent  appointed under
Article X, and its successors and permitted assigns in such capacity.

      "Affiliate" shall mean, as to any Person, each other Person that directly,
or  indirectly  through  one  or  more  intermediaries,  owns  or  controls,  is
controlled  by or under  common  control  with,  such Person or is a director or
officer of such  Person.  For purposes of this  definition,  with respect to any
Person "control" shall mean (i) the possession, direct or indirect, of the power
to direct or cause the direction of the  management and policies of such Person,
whether through the ownership of voting securities, by contract or otherwise, or
(ii) the beneficial ownership of securities or other ownership interests of such
Person having 10% or more of the combined  voting power of the then  outstanding
securities or other  ownership  interests of such Person  ordinarily  (and apart
from rights  accruing under special  circumstances)  having the right to vote in
the election of directors or other governing body of such Person.

      "Aggregate   Commitments"  shall  mean,  at  any  time,  the  sum  of  the
Commitments at such time.

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<PAGE>

      "Aggregate  Unutilized  Commitments"  shall  mean,  at any  time,  (i) the
Aggregate  Commitments  at such  time  less  (ii)  the sum of (x) the  aggregate
principal amount of Revolving Loans  outstanding at such time, (y) the aggregate
Letter of Credit  Exposure  of all  Lenders  at such time and (z) the  aggregate
principal  amount of Swingline  Loans  outstanding  at such time  (excluding the
aggregate  amount of any Swingline Loans to be repaid with proceeds of Revolving
Loans that are determined to be outstanding for purposes of this definition).

      "Agreement"  shall mean this Credit  Agreement,  as  amended,  modified or
supplemented from time to time.

      "Allowed Acquisition" shall mean any Acquisition with respect to which all
of the following  conditions are satisfied:  (i) each business acquired shall be
within the Permitted  Lines of Business,  (ii) any capital stock or other equity
securities  given as  consideration  in connection  therewith  shall be stock or
securities of the Borrower,  (iii) in the case of an  Acquisition  involving the
acquisition  of control of capital  stock or other  ownership  interests  of any
Person,  immediately after giving effect to such Acquisition such Person (or the
surviving   Person,   if  the  Acquisition  is  effected  through  a  merger  or
consolidation)  shall  be the  Borrower  or a  Wholly  Owned  Subsidiary  of the
Borrower,  and (iv) all of the  requirements of Sections 6.9 and 6.10 applicable
to such Acquisition are satisfied.

      "Asset  Disposition"  shall mean any sale,  assignment,  transfer or other
disposition  by the Borrower or any of its  Subsidiaries  to any other Person of
any of its  assets,  business  units  or  other  properties  (including  (a) any
interests in property and (b) ownership  interests in  Subsidiaries),  excluding
(i) Designated Store Exchanges, (ii) sales of inventory (including rental tapes)
in the  ordinary  course of  business  and (iii) the sale or exchange of used or
obsolete  equipment  to the extent  (y) the  proceeds  of such sale are  applied
towards,  or such equipment is exchanged for, similar  replacement  equipment or
(z) such  equipment is no longer  useful for the  operations of the Borrower and
its Subsidiaries in the ordinary course of business.

      "Assignee" shall have the meaning given to such term in Section 11.7(a).

      "Assignment  and  Acceptance"  shall  mean an  Assignment  and  Acceptance
entered  into between a Lender and an Assignee and accepted by the Agent and the
Borrower, in substantially the form of Exhibit C.

      "Authorized  Officer" shall mean any officer of the Borrower authorized by
resolution  of the  board  of  directors  of the  Borrower  to take  the  action
specified herein with respect to such officer and whose signature and incumbency
shall  have  been  certified  to the  Agent  by the  secretary  or an  assistant
secretary of the Borrower.

      "Bankruptcy Code" shall mean 11 U.S.C. ss.ss. 101 et seq., as amended from
time to time, and any successor statute.

      "Base  Rate"  shall  mean the  higher of (i) the per annum  interest  rate
publicly  announced  from  time to time  by  First  Union  in  Charlotte,  North
Carolina,  to be its prime or base rate (which may not  necessarily  be its best
lending  rate),  as adjusted to conform to changes as of the opening of business
on the date of any such  change  in such  prime or base  rate,  or (ii) 0.5% per


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<PAGE>

annum plus the Federal  Funds Rate,  as adjusted to conform to changes as of the
opening of business on the date of any such change in the Federal Funds Rate.

      "Base Rate Loan" shall mean, at any time,  any Loan that bears interest at
such time at the Adjusted Base Rate.

      "Base  Stock  Purchases"  shall  mean  purchases  of video  tapes and game
cartridges  by the  Borrower  or any of its  Subsidiaries  (i)  for use in a new
retail  store as  rental  inventory  and (ii)  that are  capitalized  as  rental
inventory.

      "Borrower Margin Stock" shall mean shares of capital stock of the Borrower
that are held by the  Borrower or any of its  Subsidiaries  and that  constitute
Margin Stock.

      "Borrowing"  shall mean the  incurrence  by the Borrower  (including  as a
result of conversions and continuations of outstanding  Revolving Loans pursuant
to Section 2.10) on a single date of a group of Revolving Loans of a single Type
(or a Swingline  Loan made by the  Swingline  Lender)  and, in the case of LIBOR
Loans, as to which a single Interest Period is in effect.

      "Borrowing Date" shall mean, with respect to any Borrowing,  the date upon
which such Borrowing is made.

      "Business  Day" shall mean (i) any day other than a Saturday or Sunday,  a
legal holiday or a day on which  commercial  banks in Charlotte,  North Carolina
are  required  by law to be  closed  and (ii) in  respect  of any  determination
relevant to a LIBOR Loan,  any such day that is also a day on which tradings are
conducted in the London interbank Eurodollar market.

      "Capital  Expenditures"  shall mean, for any period,  the aggregate amount
(whether paid in cash or accrued as a liability)  that would, in accordance with
Generally  Accepted  Accounting  Principles,  be  included  on the  consolidated
statement of cash flows of the Borrower and its  Subsidiaries for such period as
additions to equipment,  fixed assets,  real property or  improvements  or other
capital  assets  (including,  without  limitation,  capital lease  obligations);
provided,  however,  that  Capital  Expenditures  shall  not  include  any  such
expenditures (i) for replacements and  substitutions  for capital assets, to the
extent  made  with the  proceeds  of  insurance,  (ii) made in  connection  with
Permitted  Acquisitions  or  (iii)  for the  purchase  of  video  tapes  or game
cartridges.

      "Cash  Collateral  Account"  shall have the meaning  given to such term in
Section 3.8.

      "Cash  Equivalents"  shall mean (i) securities  issued or  unconditionally
guaranteed  by the United  States of  America  or any agency or  instrumentality
thereof, backed by the full faith and credit of the United States of America and
maturing  within 90 days from the date of  acquisition,  (ii)  commercial  paper
issued by any Person  organized  under the laws of the United States of America,
maturing  within  90 days  from  the  date of  acquisition  and,  at the time of
acquisition,  having a rating of at least  "A-1" or the  equivalent  thereof  by
Standard & Poor's Ratings  Services or at least "P-1" or the equivalent  thereof
by Moody's Investors Service, Inc., (iii) time deposits (which shall not include
demand deposit  accounts) and  certificates  of deposit  maturing within 90 days
from the date of issuance and issued by a bank or trust company  organized under


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<PAGE>

the laws of the United  States of America or any state thereof that has combined
capital and surplus of at least $500,000,000 and that has (or is a subsidiary of
a bank holding  company that has) a long-term  unsecured debt rating of at least
"A" or the equivalent  thereof by Standard & Poor's Ratings Services or at least
"A2"  or the  equivalent  thereof  by  Moody's  Investors  Service,  Inc.,  (iv)
repurchase  obligations with a term not exceeding seven (7) days with respect to
underlying  securities  of the types  described in clause (i) above entered into
with any bank or trust company  meeting the  qualifications  specified in clause
(iii) above,  and (v) money market funds  substantially  all of whose assets are
comprised  of  securities  of the types  described  in clauses (i) through  (iv)
above.

      "Casualty  Event" shall mean, with respect to any property  (including any
interest in property) of the Borrower or any of its  Subsidiaries,  any loss of,
damage to, or  condemnation  or other  taking of,  such  property  for which the
Borrower  or  such  Subsidiary  receives  insurance  proceeds,   proceeds  of  a
condemnation award or other compensation.

      "Closing  Date" shall mean the date upon which the initial  extensions  of
credit are made pursuant to this Agreement.

      "Collateral" shall mean all the assets, property and interests in property
that shall from time to time be pledged or be  purported to be pledged as direct
or  indirect  security  for the  Obligations  pursuant to any one or more of the
Security Documents.

      "Commitment"  shall  mean,  with  respect to any  Lender at any time,  the
obligation of such Lender to make Loans to and  participate in Letters of Credit
issued for the  account of the  Borrower in an  aggregate  or face amount at any
time  outstanding not to exceed the amount set forth opposite such Lender's name
on its signature page hereto under the caption  "Commitment"  or, if such Lender
has made an increased or new commitment  pursuant to Section 2.15 or has entered
into one or more  Assignment  and  Acceptances,  the  amount  set forth for such
Lender at such time in the Register  maintained by the Agent pursuant to Section
11.7(b) as such Lender's "Commitment," as such amount may be reduced at or prior
to such time pursuant to the terms hereof.

      "Compliance  Certificate"  shall mean a fully  completed and duly executed
certificate in the form of Exhibit D.

      "Consolidated  Funded  Debt" shall mean,  as of the last day of any fiscal
quarter,  the difference between (i) the aggregate (without  duplication) of all
Funded Debt of the Borrower and its  Subsidiaries as of such date (provided that
any Contingent Obligation of the Borrower and its Subsidiaries shall be included
only  in the  event  that it  relates  to  Indebtedness  of any  other  Person),
determined  on a  consolidated  basis  in  accordance  with  Generally  Accepted
Accounting Principles,  and (ii) the amount by which the aggregate cash balances
and Cash  Equivalents  of the  Borrower  and its  Subsidiaries  as of such date,
determined  on a  consolidated  basis  in  accordance  with  Generally  Accepted
Accounting   Principles,   exceed   $1,500,000.   For  purposes  of  determining
Consolidated  Funded  Debt as of any date,  each  Contingent  Obligation  of the
Borrower and its Subsidiaries  required to be included in such  determination as
set forth hereinabove shall be valued at the maximum aggregate  principal amount


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<PAGE>

(whether  or  not  drawn  or  outstanding)  of  the  Indebtedness  that  is  the
corresponding "primary obligation" (as such term is defined in the definition of
Contingent Obligation) as of such date.

      "Consolidated  Interest  Expense"  shall  mean,  for any  period,  the sum
(without  duplication)  of (i) total  interest  expense of the  Borrower and its
Subsidiaries  for such period in respect of Funded Debt of the  Borrower and its
Subsidiaries (including,  without limitation,  all such interest expense accrued
or  capitalized  during such period,  whether or not  actually  paid during such
period),  determined  on a  consolidated  basis  in  accordance  with  Generally
Accepted  Accounting  Principles,  (ii) all net  amounts  paid or accrued by the
Borrower  and its  Subsidiaries  during such period under or in respect of Hedge
Agreements,  and (iii) all commitment  fees and other ongoing fees in respect of
Funded Debt (including the commitment fee provided for under Section 2.8(c), and
including the fees provided for under the Fee Letter)  amortized by the Borrower
and its  Subsidiaries  during such period (if required to be  capitalized  under
Generally Accepted Accounting Principles) or paid or accrued by the Borrower and
its  Subsidiaries  during such period (if not required to be  capitalized  under
Generally Accepted Accounting Principles).

      "Consolidated  Lease Expense"  shall mean,  for any period,  the aggregate
(without  duplication) of total lease and rental expense of the Borrower and its
Subsidiaries for such period (including,  without limitation, all such lease and
rental  expense  accrued  or  capitalized  during  such  period,  whether or not
actually  paid  during  such  period,   including  capital  lease  obligations),
determined  on a  consolidated  basis  in  accordance  with  Generally  Accepted
Accounting  Principles (but excluding,  in any event, amounts paid in respect of
taxes,  utilities,  insurance,  common area  maintenance  and other like charges
associated with the lease and rental of real and personal property).

      "Consolidated Net Income" shall mean, for any period, net income (or loss)
for  the  Borrower  and  its  Subsidiaries  for  such  period,  determined  on a
consolidated basis in accordance with Generally Accepted Accounting Principles.

      "Consolidated  Net Worth"  shall mean,  at any time,  the net worth of the
Borrower and its Subsidiaries at such time,  determined on a consolidated  basis
in accordance with Generally  Accepted  Accounting  Principles but excluding any
preferred  stock or other class of equity  securities  that, by its stated terms
(or by the terms of any  class of equity  securities  issuable  upon  conversion
thereof or in exchange therefor),  or upon the occurrence of any event,  matures
or is  mandatorily  redeemable,  or is  redeemable  at the option of the holders
thereof,  in whole or in part, at any time prior to two and one-half years after
the Maturity Date.

      "Consolidated  Operating  Cash  Flow"  shall  mean,  for  each  applicable
Reference  Period,  the  aggregate  of (i)  Consolidated  Net  Income  for  such
Reference Period, plus (ii) the sum of Consolidated  Interest Expense,  federal,
state,  local and other income taxes,  depreciation,  amortization of intangible
assets and rental tapes, and extraordinary  losses and other noncash expenses or
charges reducing income for such Reference Period,  all to the extent taken into
account in the calculation of Consolidated Net Income for such Reference Period,
minus (iii) the sum of extraordinary  gains and other noncash credits increasing
income for such Reference  Period and all amounts paid in respect of New Release
Purchases,  all  to  the  extent  taken  into  account  in  the  calculation  of
Consolidated  Net Income for such  Reference  Period;  provided,  however,  that
calculations of  Consolidated  Operating Cash Flow shall (i) exclude the results


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<PAGE>

of  operations  of any Person or business  sold or otherwise  disposed of by the
Borrower  and its  Subsidiaries  at any time after the first day of the relevant
Reference  Period,  and (ii) include,  for the entire  Reference Period on a pro
forma basis, the results of operations of any Person or business acquired by the
Borrower  or any of its  Subsidiaries  at any time  after  the  first day of the
relevant  Reference  Period, so long as such Person or business is acquired in a
Permitted  Acquisition  with  respect to which the  Acquisition  Amount  exceeds
$5,000,000  and  there  have  been  furnished   unqualified   audited  financial
statements with respect to such Person or business covering a period of not less
than  one  (1)  year  prior  to the  date  of  consummation  of  such  Permitted
Acquisition  (provided that,  without the prior written approval of the Required
Lenders, such calculations shall not give effect to any increase in consolidated
operating cash flow that would otherwise be recognized on a pro forma basis, and
provided further that such calculations  shall take into account any decrease in
future revenues,  income or cash flow of any such Person or business anticipated
by the Borrower,  in good faith and at the time such  calculations are delivered
to the Lenders, to be recognized as a result of the relevant Acquisition).

      "Contingent Obligation" shall mean, with respect to any Person, any direct
or indirect liability of such Person with respect to any Indebtedness, liability
or other  obligation (the "primary  obligation") of another Person (the "primary
obligor"),  whether or not contingent, (a) to purchase,  repurchase or otherwise
acquire such primary obligation or any property  constituting direct or indirect
security  therefor,  (b) to  advance  or  provide  funds (i) for the  payment or
discharge of any such primary  obligation or (ii) to maintain working capital or
equity capital of the primary  obligor or otherwise to maintain the net worth or
solvency or any balance  sheet item,  level of income or financial  condition of
the primary obligor, (c) to purchase property,  securities or services primarily
for the  purpose of assuring  the owner of any such  primary  obligation  of the
ability  of the  primary  obligor in  respect  thereof  to make  payment of such
primary  obligation or (d) otherwise to assure or hold harmless the owner of any
such  primary  obligation  against  loss or failure or  inability  to perform in
respect thereof;  provided,  however, that, with respect to the Borrower and its
Subsidiaries,  the term "Contingent  Obligation" shall not include  endorsements
for collection or deposit in the ordinary course of business.

      "Covenant Compliance  Worksheet" shall mean a fully completed worksheet in
the form of Attachment A to Exhibit D.

      "Credit Documents" shall mean this Agreement, the Notes, the Guaranty, the
Security  Documents,  the Fee  Letter,  and all other  agreements,  instruments,
documents and certificates now or hereafter  executed and delivered to the Agent
or any Lender by or on behalf of the  Borrower or any of its  Subsidiaries  with
respect  to  this  Agreement  and  the  transactions  contemplated  hereby  (but
specifically excluding any Hedge Agreements), in each case as amended, modified,
supplemented or restated from time to time.

      "Debt  Issuance" shall mean the issuance or sale by the Borrower or any of
its  Subsidiaries of any debt  securities,  whether in a public offering of such
securities or otherwise.

      "Default" shall mean any event or condition that, with the passage of time
or giving of notice, or both, would constitute an Event of Default.

                                       7
<PAGE>

      "Designated  Store  Exchange"  shall  mean  the  swap or  exchange  by the
Borrower or any of its  Subsidiaries  of any one or more  retail  stores and the
inventory,  fixtures,  leasehold and other assets relating thereto,  in exchange
for  consideration  consisting  primarily of one or more  comparable  stores and
related assets, provided that (i) such swap or exchange shall be on commercially
reasonable terms and for fair value, (ii) such swap or exchange shall not expose
the  Borrower  or any  Subsidiary  to any  material  liability  (other than with
respect  to   Indebtedness   expressly   assumed  in  connection   therewith  or
Indebtedness,  not to exceed  $1,000,000  per swap or exchange,  incurred by the
Borrower or any Subsidiary in connection  therewith,  provided in each case that
such Indebtedness is expressly subordinated and made junior in right and time of
payment to the  Obligations  and is otherwise  permitted  hereunder),  including
liability with respect to  environmental  matters,  litigation,  and adverse tax
consequences,  and (iii)  any  consideration  received  by the  Borrower  or any
Subsidiary  that does not consist of such  comparable  stores and related assets
shall consist of cash.

      "Dollars" or "$" shall mean dollars of the United States of America.

      "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended  from  time to  time,  and any  successor  statute,  and all  rules  and
regulations from time to time promulgated  thereunder.  

     "ERISA  Affiliate" shall mean any Person  (including any trade or business,
whether or not  incorporated)  that would be deemed to be under "common control"
with, or a member of the same "controlled  group" as, the Borrower or any of its
Subsidiaries,  within the meaning of  Sections  414(b),  (c),  (m) or (o) of the
Internal Revenue Code or Section 4001 of ERISA.

      "ERISA  Event" shall mean any of the  following  with respect to a Plan or
Multiemployer Plan, as applicable: (i) a Reportable Event with respect to a Plan
or a Multiemployer  Plan, (ii) a complete or partial  withdrawal by the Borrower
or any ERISA Affiliate from a Multiemployer Plan that results in liability under
Section  4201 or 4204 of ERISA,  or the  receipt  by the  Borrower  or any ERISA
Affiliate of notice from a Multiemployer  Plan that it is in  reorganization  or
insolvency  pursuant  to  Section  4241 or 4245 of ERISA or that it  intends  to
terminate or has terminated under Section 4041A of ERISA, (iii) the distribution
by the Borrower or any ERISA Affiliate under Section 4041 or 4041A of ERISA of a
notice of intent to terminate  any Plan or the taking of any action to terminate
any Plan, (iv) the commencement of proceedings by the PBGC under Section 4042 of
ERISA for the termination of, or the appointment of a trustee to administer, any
Plan, or the receipt by the Borrower or any ERISA Affiliate of a notice from any
Multiemployer  Plan that such action has been taken by the PBGC with  respect to
such Multiemployer Plan, (v) the institution of a proceeding by any fiduciary of
any  Multiemployer  Plan against the Borrower or any ERISA  Affiliate to enforce
Section 515 of ERISA,  which is not dismissed  within thirty (30) days, (vi) the
imposition upon the Borrower or any ERISA Affiliate of any liability under Title
IV of ERISA,  other than for PBGC premiums due but not delinquent  under Section
4007 of ERISA,  or the imposition or threatened  imposition of any Lien upon any
assets of the Borrower or any ERISA Affiliate as a result of any alleged failure
to comply with the Internal  Revenue Code or ERISA in respect of any Plan, (vii)
the  engaging  in  or  otherwise  becoming  liable  for a  nonexempt  Prohibited
Transaction  by the Borrower or any ERISA  Affiliate,  (viii) a violation of the
applicable  requirements of Section 404 or 405 of ERISA or the exclusive benefit
rule under Section  401(a) of the Internal  Revenue Code by any fiduciary of any


                                       8
<PAGE>

Plan for which the  Borrower or any of its ERISA  Affiliates  may be directly or
indirectly  liable  or (ix) the  adoption  of an  amendment  to any  Plan  that,
pursuant to Section  401(a)(29)  of the Internal  Revenue Code or Section 307 of
ERISA,  would result in the loss of tax-exempt status of the trust of which such
Plan is a part if the  Borrower or an ERISA  Affiliate  fails to timely  provide
security to such Plan in accordance with the provisions of such sections.

      "Eligible  Assignee"  shall mean (i) a commercial bank organized under the
laws of the United States or any state thereof and having total assets in excess
of $1,000,000,000,  (ii) a commercial bank organized under the laws of any other
country  that is a member  of the  Organization  for  Economic  Cooperation  and
Development or any successor thereto (the "OECD") or a political  subdivision of
any such country and having total assets in excess of  $1,000,000,000,  provided
that  such bank or other  financial  institution  is acting  through a branch or
agency located in the United  States,  in the country under the laws of which it
is organized or in another country that is also a member of the OECD,  (iii) the
central  bank of any  country  that is a  member  of the  OECD,  (iv) a  finance
company,  insurance  company  or other  financial  institution  or fund  that is
engaged in making,  purchasing  or otherwise  investing in loans in the ordinary
course of its business and having  total assets in excess of  $500,000,000,  (v)
any  Affiliate of an existing  Lender or (vi) any other  Person  approved by the
Required Lenders, which approval shall not be unreasonably withheld.

      "Environmental  Claims" shall mean any and all administrative,  regulatory
or judicial actions, suits, demands,  demand letters,  claims, liens, notices of
noncompliance or violation, investigations (other than internal reports prepared
by any Person in the ordinary  course of its business and not in response to any
third party action or request of any kind) or proceedings relating in any way to
any  Environmental  Law or any permit issued,  or any approval given,  under any
such Environmental Law (collectively,  "Claims"), including, without limitation,
(i) any and all Claims by  Governmental  Authorities for  enforcement,  cleanup,
removal,  response,  remedial  or  other  actions  or  damages  pursuant  to any
applicable  Environmental  Law and (ii) any and all  Claims by any  third  party
seeking damages, contribution,  indemnification,  cost recovery, compensation or
injunctive  relief  resulting from Hazardous  Substances or arising from alleged
injury or threat of injury to human health or the environment.

      "Environmental Laws" shall mean any and all federal, state and local laws,
statutes,   ordinances,   rules,  regulations,   permits,  licenses,  approvals,
interpretations,  rules of common  law and  orders  of  courts  or  Governmental
Authorities,  relating to the protection of human health or occupational  safety
or the environment,  now or hereafter in effect and in each case as amended from
time to time,  including,  without  limitation,  requirements  pertaining to the
manufacture,   processing,  distribution,  use,  treatment,  storage,  disposal,
transportation,  handling, reporting,  licensing,  permitting,  investigation or
remediation of Hazardous Substances.

      "Equity  Issuance" shall mean (i) the issuance,  sale or other disposition
by the Borrower or any of its  Subsidiaries  of its capital  stock,  any rights,
warrants or options to purchase or acquire any shares of its capital  stock,  or
any other security or instrument representing,  convertible into or exchangeable
for an equity interest in the Borrower or any of its Subsidiaries,  and (ii) the
receipt by the Borrower or any of its  Subsidiaries of any capital  contribution
(whether or not  evidenced by any security or  instrument);  provided,  however,
that the term "Equity  Issuance"  shall not include (x) any rights,  warrants or
options issued to directors, officers or employees of the Borrower or any of its


                                       9
<PAGE>

Subsidiaries  pursuant to bona fide employee  benefit plans  established  in the
ordinary  course of business  and any  capital  stock  issued upon the  exercise
thereof,  (y) any capital  contribution  to any  Subsidiary,  to the extent made
directly or indirectly by the Borrower, or (z) any capital stock or other equity
securities  issued or sold in  connection  with any  Permitted  Acquisition  and
constituting all or a portion of the applicable purchase price.

      "Event of Default"  shall have the  meaning  given to such term in Section
9.1.

      "Exchange Act" shall mean the Securities  Exchange Act of 1934, as amended
from time to time, and any successor statute, and all rules and regulations from
time to time promulgated thereunder.

      "Fair Market  Value" shall mean,  with respect to any capital stock of the
Borrower  given in  connection  with an  Acquisition,  the  value  given to such
capital  stock for  purposes  of such  Acquisition  by the parties  thereto,  as
determined  in good faith  pursuant to the  relevant  acquisition  agreement  or
otherwise in connection with such Acquisition.

      "Federal Funds Rate" shall mean, for any period,  a fluctuating  per annum
interest  rate  (rounded  upwards,  if  necessary,  to the nearest  1/100 of one
percentage  point) equal for each day during such period to the weighted average
of the rates on overnight federal funds transactions with members of the Federal
Reserve System arranged by federal funds brokers, as published for such day (or,
if such day is not a Business Day, for the next  preceding  Business Day) by the
Federal  Reserve Bank of New York,  or if such rate is not so published  for any
day that is a Business Day, the average of the  quotations  for such day on such
transactions  received  by  the  Agent  from  three  federal  funds  brokers  of
recognized standing selected by the Agent.

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

      "Fee Letter" shall mean the letter from First Union to the Borrower, dated
November 5, 1998, relating to certain fees payable by the Borrower in respect of
the transactions  contemplated by this Agreement,  as amended by the letter from
First Union to the  Borrower  dated  December  17, 1998 and as further  amended,
modified or supplemented from time to time.

      "Fixed Charge Coverage Ratio" shall mean, as of the last day of any fiscal
quarter, the ratio of:

           (i) the sum of (y) Consolidated Operating Cash Flow for the Reference
Period then ending and (z)  Consolidated  Lease Expense for the Reference Period
then ending; to

           (ii)  the  aggregate  (without  duplication)  of the  following,  all
determined  on a  consolidated  basis for the Borrower and its  Subsidiaries  in
accordance  with  Generally  Accepted  Accounting  Principles  for the Reference
Period then ending: (a) Consolidated Interest Expense for such Reference Period,
(b)  federal,  state,  local  and other  income  taxes  (but only to the  extent
actually paid during such Reference Period),  (c) Consolidated Lease Expense for
such  Reference  Period,  (d) the  aggregate  of all amounts paid in cash by the


                                       10
<PAGE>

Borrower  and its  Subsidiaries  during such  Reference  Period as  dividends or
distributions  in  respect  of, or to  purchase,  redeem,  retire  or  otherwise
acquire,  its capital  stock or any  warrants,  rights or options to acquire its
capital stock, (e) all principal payments in respect of Funded Debt scheduled or
otherwise required to have been made by the Borrower and its Subsidiaries during
such Reference Period,  and (f) Capital  Expenditures made during such Reference
Period, other than Capital Expenditures made with respect to new retail stores.

      "Funded  Debt"  shall mean any  Indebtedness  other than (i)  Indebtedness
arising under Hedge Agreements and (ii) accrued expenses, current trade or other
accounts payable and other current liabilities arising in the ordinary course of
business and not incurred through the borrowing of money.

      "Generally Accepted  Accounting  Principles" shall mean generally accepted
accounting   principles,   as  set  forth  in  the   statements,   opinions  and
pronouncements  of the Accounting  Principles  Board, the American  Institute of
Certified Public Accountants and the Financial  Accounting  Standards Board (or,
to the extent not so set forth in such statements,  opinions and pronouncements,
as generally followed by entities similar in size to the Borrower and engaged in
generally similar lines of business), consistently applied and maintained and in
conformity  with  those used in the  preparation  of the most  recent  financial
statements of the Borrower referred to in Section 5.11(a).

      "Governmental Authority" shall mean any nation or government, any state or
other political subdivision thereof and any central bank thereof, any municipal,
local,  city  or  county  government,   and  any  entity  exercising  executive,
legislative,  judicial,  regulatory or administrative functions of or pertaining
to government, and any corporation or other entity owned or controlled,  through
stock or capital ownership or otherwise, by any of the foregoing.

      "Guaranty" shall mean a guaranty agreement made by the Subsidiaries of the
Borrower  (other than Immaterial  Subsidiaries),  in  substantially  the form of
Exhibit F, as amended, modified or supplemented from time to time.

      "Hazardous Substances" shall mean any substances or materials (i) that are
or  become  defined  as  hazardous  wastes,  hazardous  substances,  pollutants,
contaminants  or toxic  substances  under any  Environmental  Law, (ii) that are
defined by any  Environmental  Law as toxic,  explosive,  corrosive,  ignitable,
infectious, radioactive, mutagenic or otherwise hazardous, (iii) the presence of
which require  investigation or response under any Environmental  Law, (iv) that
constitute  a  nuisance,  trespass  or  health or safety  hazard to  Persons  or
neighboring  properties,  (v) that consist of underground or aboveground storage
tanks, whether empty, filled or partially filled with any substance or (vi) that
contain,  without  limitation,   asbestos,   polychlorinated   biphenyls,   urea
formaldehyde  foam  insulation,   petroleum   hydrocarbons,   petroleum  derived
substances or wastes, crude oil, nuclear fuel, natural gas or synthetic gas.

      "Hedge  Agreement"  shall mean any interest or foreign currency rate swap,
cap,  collar,  option,  hedge,  forward  rate  or  other  similar  agreement  or
arrangement  designed  to protect  against  fluctuations  in  interest  rates or
currency exchange rates.

                                       11
<PAGE>

      "Immaterial Subsidiary" shall mean any Subsidiary of the Borrower that (i)
does not  conduct any active  trade or  business  and (ii) either (a) has assets
with a gross  fair  market  value  of less  than  $100,000  and  gross  revenues
(determined  for the most  recently  ended period of twelve  consecutive  fiscal
months) of less than  $100,000 or (b) has been  organized  by the Borrower as an
acquisition  vehicle  solely for the purpose of merging with  another  Person in
connection  with a  Permitted  Acquisition;  provided  that  Movie Time shall be
deemed an Immaterial Subsidiary  notwithstanding the foregoing  conditions,  but
only for so long as it engages in no trade or business, and has no assets, other
than its licensing arrangements in effect as of the Closing Date.

      "Indebtedness"   shall  mean,   with   respect  to  any  Person   (without
duplication),  (i) all  indebtedness  of such  Person for  borrowed  money or in
respect of loans or advances,  (ii) all obligations of such Person  evidenced by
notes,  bonds,  debentures  or  similar  instruments,  (iii)  all  reimbursement
obligations  of such Person with respect to surety bonds,  letters of credit and
bankers'  acceptances (in each case,  whether or not drawn or matured and in the
stated amount thereof),  (iv) all obligations of such Person to pay the deferred
purchase price of property or services,  (v) all indebtedness created or arising
under any conditional  sale or other title  retention  agreement with respect to
property acquired by such Person,  (vi) all obligations of such Person as lessee
under  leases  that are or should  be, in  accordance  with  Generally  Accepted
Accounting   Principles,   recorded  as  capital  leases,  to  the  extent  such
obligations are required to be so recorded, (vii) all obligations of such Person
to purchase, redeem, retire, defease or otherwise make any payment in respect of
any capital stock or other equity  securities that, by their stated terms (or by
the terms of any  equity  securities  issuable  upon  conversion  thereof  or in
exchange  therefor),  or  upon  the  occurrence  of  any  event,  mature  or are
mandatorily  redeemable,  or are redeemable at the option of the holder thereof,
in whole or in part,  at any time  prior to the  Maturity  Date,  (viii) the net
termination obligations of such Person under any Hedge Agreements, calculated as
of any date as if such agreement or arrangement were terminated as of such date,
(ix) all Contingent Obligations of such Person and (x) all indebtedness referred
to in clauses  (i)  through  (ix) above  secured by any Lien on any  property or
asset  owned or held by such  Person  regardless  of  whether  the  indebtedness
secured  thereby shall have been assumed by such Person or is nonrecourse to the
credit of such Person.

      "Interest  Coverage  Ratio"  shall mean,  as of the last day of any fiscal
quarter,  the ratio of (i)  Consolidated  Operating  Cash Flow for the Reference
Period  then ending to (ii)  Consolidated  Interest  Expense  for the  Reference
Period then ending.

      "Interest  Period"  shall have the  meaning  given to such term in Section
2.9.

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

      "Issuing  Lender"  shall mean First Union in its capacity as issuer of the
Letters of Credit, and its successors in such capacity.

      "LIBOR  Loan"  shall  mean,  at any time,  any  Revolving  Loan that bears
interest at such time at the Adjusted LIBOR Rate.

                                       12
<PAGE>

      "LIBOR Rate" shall mean,  with respect to each LIBOR Loan  comprising part
of the same  Borrowing  for any  Interest  Period,  an  interest  rate per annum
obtained by dividing  (i) (y) the rate of interest  appearing  on Telerate  Page
3750 (or any  successor  page) or (z) if no such rate is readily  ascertainable,
the rate of interest  determined  by the Agent to be the rate or the  arithmetic
mean  of  rates  (rounded  upward,  if  necessary,  to the  nearest  1/16 of one
percentage  point) at which Dollar  deposits in immediately  available funds are
offered by First Union to first-tier  banks in the London  interbank  Eurodollar
market, in each case under (y) and (z) above at approximately 11:00 a.m., London
time, two (2) Business Days prior to the first day of such Interest Period for a
period   substantially   equal  to  such  Interest   Period  and  in  an  amount
substantially equal to the amount of First Union's LIBOR Loan comprising part of
such Borrowing,  by (ii) the amount equal to 1.00 minus the Reserve  Requirement
(expressed as a decimal) for such Interest Period.

      "Lender" shall mean each financial  institution  signatory hereto and each
other  financial  institution  that  becomes a "Lender"  hereunder  pursuant  to
Section 11.7, and their respective successors and assigns.

      "Lending  Office"  shall mean,  with respect to any Lender,  the office of
such Lender  designated as its "Lending  Office" on its signature page hereto or
in an  Assignment  and  Acceptance,  or such  other  office as may be  otherwise
designated  in writing  from time to time by such Lender to the Borrower and the
Agent.  A Lender may  designate  separate  Lending  Offices as  provided  in the
foregoing sentence for the purposes of making or maintaining  different Types of
Loans,  and,  with  respect to LIBOR  Loans,  such  office may be a domestic  or
foreign branch or Affiliate of such Lender.

      "Letter of Credit  Exposure" shall mean, with respect to any Lender at any
time,  such Lender's  ratable share (based on the proportion that its Commitment
bears to the Aggregate Commitments at such time) of the sum of (i) the aggregate
Stated  Amount of all  Letters of Credit  outstanding  at such time and (ii) the
aggregate amount of all Reimbursement Obligations outstanding at such time.

      "Letter of Credit  Notice"  shall have the  meaning  given to such term in
Section 3.2.

      "Letters of Credit"  shall have the meaning  given to such term in Section
3.1.

      "Leverage Ratio" shall mean, as of the last day of any fiscal quarter, the
ratio  of (i)  Consolidated  Funded  Debt as of such  date to (ii)  Consolidated
Operating Cash Flow for the Reference Period then ending.

      "Lien"  shall  mean  any  mortgage,  pledge,  hypothecation,   assignment,
security interest, lien (statutory or otherwise),  preference,  priority, charge
or other encumbrance of any nature, whether voluntary or involuntary, including,
without  limitation,  the interest of any vendor or lessor under any conditional
sale agreement,  title retention agreement,  capital lease or any other lease or
arrangement having substantially the same effect as any of the foregoing.

      "Loans" shall mean the Revolving Loans and the Swingline Loans.

                                       13
<PAGE>

      "M.G.A."  shall mean  M.G.A.,  Inc., a Delaware  corporation  and a Wholly
Owned Subsidiary of the Borrower.

      "Margin  Percentage"  shall mean,  at any time  (except as provided in the
last sentence of this definition),  the applicable percentage (a) to be added to
the Base Rate pursuant to Section 2.7 for purposes of  determining  the Adjusted
Base  Rate,  (b) to be added to the  LIBOR  Rate  pursuant  to  Section  2.7 for
purposes  of  determining  the  Adjusted  LIBOR  Rate,  and  (c) to be  used  in
calculating the commitment fee payable pursuant to Section 2.8(c),  in each case
as determined under the following matrix with reference to the Leverage Ratio:

<TABLE>

<CAPTION>
                                            Applicable Margin    Applicable Margin     Applicable Margin
                                              Percentage for      Percentage for        Percentage for
          Leverage Ratio                     Base Rate Loans        LIBOR Loans         Commitment Fee
          --------------                    -----------------    -----------------    -----------------
<S>                                              <C>                   <C>                  <C> 
Greater than or equal to 3.0 to 1.0              1.25%                 2.5%                 0.5%

Greater than or equal to 2.5 to 1.0              1.0%                  2.25%                0.5%
     but less than 3.0 to 1.0

Greater than or equal to 2.0 to 1.0              0.75%                 2.0%                 0.5%
     but less than 2.5 to 1.0

Greater than or equal to 1.5 to 1.0              0.5%                  1.75%                0.375%
     but less than 2.0 to 1.0

   Greater than or equal to 1.0                  0.25%                 1.5%                 0.375%
     but less than 1.5 to 1.0

       Less than 1.0 to 1.0                      0.0%                  1.25%                0.375%
</TABLE>

The Margin  Percentages  shall be reset from time to time in accordance with the
above matrix on the tenth (10th) day (or, if such day is not a Business  Day, on
the next  succeeding  Business Day) after delivery by the Borrower in accordance
with  Sections  6.1(a)  and  6.1(b)  of  financial  statements  together  with a
Compliance Certificate attaching a Covenant Compliance Worksheet (reflecting the
computation  of the Leverage  Ratio as of the last day of the  preceding  fiscal
quarter, beginning with the fiscal quarter ending January 3, 1999) that provides
for a change in any of the Margin  Percentages  from that then in effect.  Until
the first  effective date of any change in any of the Margin  Percentages  under
the matrix as provided  above,  the Margin  Percentages  shall be  determined by
reference  to the  Leverage  Ratio  determined  as of  October  4,  1998  and as
reflected in the certificate of the Borrower described in Section 4.1(g).

      "Margin Stock" shall have the meaning given to such term in Regulation U.

      "Material  Adverse  Change"  shall mean a material  adverse  change in the
condition  (financial  or  otherwise),   operations,   business,  properties  or
financial prospects of the Borrower or the Borrower and its Subsidiaries,  taken
as a whole.

                                       14
<PAGE>

                                     
      "Material  Adverse  Effect" shall mean a material  adverse effect upon (i)
the condition  (financial or  otherwise),  operations,  business,  properties or
financial prospects of the Borrower or the Borrower and its Subsidiaries,  taken
as a whole,  (ii) the ability of the Borrower or any  Subsidiary  to perform its
obligations  under this Agreement or any of the other Credit  Documents or (iii)
the legality,  validity or  enforceability of this Agreement or any of the other
Credit  Documents  or the  rights  and  remedies  of the Agent  and the  Lenders
hereunder and thereunder.

      "Material  Contract"  shall mean any  contract or  agreement  to which the
Borrower or any of its  Subsidiaries  is a party,  by which any of them or their
respective  properties  is bound or to which any of them is subject  and that is
required to be filed as an exhibit to the Borrower's  registration statements or
periodic reports  (including on Forms 10-Q and 10-K) submitted to the Securities
and Exchange  Commission  under the Securities Act of 1933, as amended,  and the
rules and regulations  from time to time  promulgated  thereunder,  or under the
Exchange Act.

      "Material  Subsidiary"  shall mean any Subsidiary other than an Immaterial
Subsidiary.

      "Maturity Date" shall mean the third anniversary of the Closing Date.

      "Movie  Time" shall mean Movie Time,  Inc., a Virginia  corporation  and a
Wholly Owned Subsidiary of M.G.A.

      "Multiemployer  Plan"  shall  mean any  "multiemployer  plan"  within  the
meaning  of  Section  4001(a)(3)  of ERISA to which  the  Borrower  or any ERISA
Affiliate makes, is making or is obligated to make  contributions or has made or
been obligated to make contributions.

      "Net Cash Proceeds"  shall mean (i) in the case of any Equity  Issuance or
Debt  Issuance,  the aggregate  cash  payments  received by the Borrower and its
Subsidiaries  less reasonable fees and expenses incurred by the Borrower and its
Subsidiaries  in connection  therewith,  (ii) in the case of any Casualty Event,
the  aggregate  cash  proceeds  of  insurance,  condemnation  awards  and  other
compensation  received by the Borrower and its  Subsidiaries  in respect of such
Casualty  Event less (y) reasonable  fees and expenses  incurred by the Borrower
and its  Subsidiaries  in connection  therewith and (z)  contractually  required
repayments  of  Indebtedness  to the  extent  secured  by Liens on the  property
subject  to such  Casualty  Event  and any  income  or  transfer  taxes  paid or
reasonably  estimated  by the  Borrower  to be payable by the  Borrower  and its
Subsidiaries  as a result of such Casualty  Event,  and (iii) in the case of any
Asset Disposition, the aggregate amount of all cash payments and the fair market
value of any noncash consideration received by the Borrower and its Subsidiaries
in connection with such Asset  Disposition less (x) reasonable fees and expenses
incurred by the Borrower  and its  Subsidiaries  in  connection  therewith,  (y)
Indebtedness  to the  extent  the  amount  thereof  is  secured by a Lien on the
property that is the subject of such Asset Disposition and the transferee of (or
holder of the Lien on) such Property  requires that such  Indebtedness be repaid
as a condition to such Asset  Disposition,  and (z) any income or transfer taxes
paid or  reasonably  estimated by the Borrower to be payable by the Borrower and
its Subsidiaries as a result of such Asset Disposition.

      "New  Release  Purchases"  shall mean  purchases  of video  tapes and game
cartridges  by the  Borrower or any of its  Subsidiaries,  other than Base Stock
Purchases,  (i) for use as rental  inventory  and (ii) that are  capitalized  as
rental inventory.


                                       15
<PAGE>
                                

      "Notes" shall mean the Revolving Credit Notes and the Swingline Note.

      "Notice of  Borrowing"  shall mean a Notice of  Revolving  Borrowing  or a
Notice of Swingline Borrowing, as the context may require.

      "Notice of  Conversion/Continuation"  shall have the meaning given to such
term in Section 2.10(b).

      "Notice of Revolving  Borrowing" shall have the meaning given to such term
in Section 2.2(b).

      "Notice of Swingline  Borrowing" shall have the meaning given to such term
in Section 2.2(c).

      "Obligations" shall mean all principal of and interest (including,  to the
greatest  extent  permitted by law,  post-petition  interest) on the Loans,  all
Reimbursement  Obligations  and  all  fees,  expenses,   indemnities  and  other
obligations  owing, due or payable at any time by the Borrower to the Agent, any
Lender,  the Issuing Lender,  the Swingline  Lender or any other Person entitled
thereto under this Agreement or any of the other Credit Documents.

      "PBGC"  shall  mean  the  Pension  Benefit  Guaranty  Corporation  and any
successor thereto.

      "Participant"  shall  have  the  meaning  given  to such  term in  Section
11.7(d).

      "Permitted Acquisition" shall mean (i) any Allowed Acquisition or (ii) any
Acquisition  to which the Required  Lenders have  consented  pursuant to Section
6.9(b) and with  respect to which all of the other  requirements  of Section 6.9
applicable to such  Acquisition are satisfied or otherwise  waived in writing by
the Required Lenders.

      "Permitted  Liens"  shall have the  meaning  given to such term in Section
8.3.

      "Permitted  Lines of  Business"  shall mean the business of video tape and
game cartridge  rental and sales and the rental or sale of products and services
reasonably ancillary thereto.

      "Person"  shall  mean  any   corporation,   association,   joint  venture,
partnership,  limited liability  company,  organization,  business,  individual,
trust,  government or agency or political subdivision thereof or any other legal
entity.

      "Plan" shall mean any "employee  pension  benefit plan" within the meaning
of Section 3(2) of ERISA that is subject to the  provisions of Title IV of ERISA
(other  than a  Multiemployer  Plan)  and to which  the  Borrower  or any  ERISA
Affiliate may have any liability.

      "Pledge  Agreement"  shall mean a pledge agreement made by the Borrower in
favor of the Agent, in substantially the form of Exhibit E, as amended, modified
or supplemented from time to time.

      "Prohibited  Transaction"  shall  mean any  transaction  described  in (i)
Section  406 of ERISA that is not exempt by reason of Section 408 of ERISA or by
reason of a  Department  of Labor  prohibited  transaction  individual  or class
exemption  or (ii)  Section  4975(c) of the  Internal  Revenue  Code that is not
exempt by reason of Section 4975(c)(2) or 4975(d) of the Internal Revenue Code.


                                       16
<PAGE>
                                

      "Reference Period" shall mean, in calculating any item for purposes of any
determination  of compliance  with the limitations set forth in clauses (ii) and
(iii) of Section  6.9 and the  financial  covenants  set forth in  Sections  7.1
through 7.3 as of the last day of any fiscal quarter,  beginning with the fiscal
quarter  ending  January 3, 1999  (including  the  calculation  of  Consolidated
Operating Cash Flow for purposes of determining  the Fixed Charge Coverage Ratio
and the Interest  Coverage Ratio as of the last day of any such fiscal quarter),
the period of four consecutive fiscal quarters ending on such date.

      "Refunded  Swingline  Loans" shall have the meaning  given to such term in
Section 2.2(d).

      "Register" shall have the meaning given to such term in Section 11.7(b).

      "Regulations  D,  T,  U and  X"  shall  mean  Regulations  D,  T, U and X,
respectively, of the Federal Reserve Board, and any successor regulations.

      "Reimbursement  Obligation"  shall have the meaning  given to such term in
Section 3.4.

      "Reportable  Event"  shall  mean (i) any  "reportable  event"  within  the
meaning of Section  4043(c) of ERISA for which the 30-day  notice under  Section
4043(a) of ERISA has not been waived by the PBGC  (including any failure to meet
the minimum funding standard of, or timely make any required  installment under,
Section 412 of the Internal Revenue Code or Section 302 of ERISA,  regardless of
the issuance of any waivers in  accordance  with Section  412(d) of the Internal
Revenue Code), (ii) any such "reportable event" subject to advance notice to the
PBGC under Section  4043(b)(3)  of ERISA,  (iii) any  application  for a funding
waiver or an extension of any amortization period pursuant to Section 412 of the
Internal  Revenue Code, and (iv) a cessation of operations  described in Section
4062(e) of ERISA.

      "Required  Lenders"  shall mean (i) at any time  prior to the  Termination
Date,  the  Lenders  having  more  than  fifty  percent  (50%) of the  Aggregate
Commitments  at such  time,  and (ii) on and after  the  Termination  Date,  the
Lenders  having  more  than  fifty  percent  (50%)  of the sum of the  aggregate
principal amount of the Loans  outstanding at such time and the aggregate Letter
of Credit  Exposure  of all Lenders at such time (or, if at any time on or after
the Termination Date at which no Loans or Letters of Credit are outstanding, the
Lenders  having  more than  fifty  percent  (50%) of the  Aggregate  Commitments
immediately prior to the termination of the Commitments).

      "Requirement of Law" shall mean, with respect to any Person,  the charter,
articles or certificate of  organization  or  incorporation  and bylaws or other
organizational  or governing  documents of such  Person,  and any statute,  law,
treaty, rule,  regulation,  order, decree, writ,  injunction or determination of
any arbitrator or court or other Governmental Authority, in each case applicable
to or binding upon such Person or any of its property or to which such Person or
any of its  property  is subject or  otherwise  pertaining  to any or all of the
transactions contemplated by this Agreement and the other Credit Documents.


                                       17
<PAGE>
                                
      "Reserve Requirement" shall mean, with respect to any Interest Period, the
reserve  percentage  (expressed as a decimal) in effect from time to time during
such Interest  Period,  as provided by the Federal  Reserve  Board,  applied for
determining the maximum reserve  requirements  (including,  without  limitation,
basic, supplemental,  marginal and emergency reserves) applicable to First Union
under Regulation D with respect to "Eurocurrency liabilities" within the meaning
of  Regulation D, or under any similar or successor  regulation  with respect to
Eurocurrency liabilities or Eurocurrency funding.

      "Responsible Officer" shall mean, with respect to the Borrower, any of the
chief  executive  officer,  the  president,  the chief  financial  officer,  any
executive vice president or the chief accounting officer of the Borrower.

      "Revolving  Credit Notes" shall mean the promissory  notes of the Borrower
in  substantially  the  form of  Exhibit  A-1,  together  with  any  amendments,
modifications and supplements thereto,  substitutions  therefor and restatements
thereof.

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

      "Security  Documents" shall mean the Pledge Agreement and all other pledge
or security agreements or instruments  executed and delivered by the Borrower or
any of its Subsidiaries pursuant to Section 6.10 or otherwise in connection with
the  transactions  contemplated  hereby,  in each case as  amended,  modified or
supplemented from time to time.

      "Stated  Amount"  shall mean,  with respect to any Letter of Credit at any
time,  the  aggregate  amount  available  to be drawn  thereunder  at such  time
(regardless of whether any conditions for drawing could then be met).

      "Subordinated  Indebtedness"  shall have the meaning given to such term in
Section 8.2.

      "Subsidiary"  shall mean,  with respect to any Person,  any corporation or
other Person of which more than fifty percent (50%) of the  outstanding  capital
stock  having  ordinary  voting  power  to  elect a  majority  of the  board  of
directors,  in the case of a  corporation,  or of the  ownership  or  beneficial
interests,  in the case of a Person not a corporation,  is at the time, directly
or  indirectly,  owned or controlled by such Person and one or more of its other
Subsidiaries or a combination  thereof  (irrespective  of whether,  at the time,
securities of any other class or classes of any such corporation or other Person
shall or might have voting power by reason of the happening of any contingency).
When used without reference to a parent entity,  the term "Subsidiary"  shall be
deemed to refer to a Subsidiary of the Borrower.

      "Swingline  Commitment"  shall mean  $3,000,000 or, if less, the Aggregate
Commitments  at the time of  determination,  as such amount may be reduced at or
prior to such time pursuant to the terms hereof.

      "Swingline  Lender"  shall mean First  Union in its  capacity  as maker of
Swingline Loans, and its successors in such capacity.

                                       18
<PAGE>

      "Swingline  Loans"  shall have the  meaning  given to such term in Section
2.1(b).

      "Swingline  Maturity  Date" shall mean the date that is five (5)  Business
Days prior to the Maturity Date.

      "Swingline  Note"  shall  mean  the  promissory  note of the  Borrower  in
substantially   the  form  of  Exhibit  A-2,   together  with  any   amendments,
modifications and supplements thereto,  substitutions  therefor and restatements
thereof.

      "Terminating  Senior  Indebtedness"  shall mean all indebtedness and other
monetary  obligations  of the Borrower under the Credit  Agreement,  dated as of
July  10,  1996,   among  the  Borrower,   certain  banks  and  other  financial
institutions  party thereto,  and First Union  National Bank (formerly  known as
First Union  National  Bank of North  Carolina),  as Agent,  Issuing  Lender and
Swingline Lender, as amended.

      "Termination  Date" shall mean the  Maturity  Date or such earlier date of
termination of the Commitments pursuant to Section 2.5 or Section 9.2.

      "Type" shall have the meaning given to such term in Section 2.2(a).

      "Unfunded  Pension  Liability"  shall  mean,  with  respect to any Plan or
Multiemployer  Plan,  the  excess  of  its  benefit  liabilities  under  Section
4001(a)(16)  of  ERISA  over the  current  value of its  assets,  determined  in
accordance with the applicable assumptions used for funding under Section 412 of
the Code for the applicable plan year.

      "Unutilized  Commitment"  shall  mean,  with  respect to any Lender at any
time,  such  Lender's  Commitment at such time less the sum of (i) the aggregate
principal amount of all Revolving Loans made by such Lender that are outstanding
at such time and (ii) such Lender's Letter of Credit Exposure at such time.

      "Unutilized   Swingline  Commitment"  shall  mean,  with  respect  to  the
Swingline  Lender at any time,  the  Swingline  Commitment at such time less the
aggregate  principal  amount of all Swingline Loans that are outstanding at such
time.

      "Wholly  Owned" shall mean,  with respect to any Subsidiary of any Person,
that 100% of the outstanding  capital stock or other ownership interests of such
Subsidiary is owned, directly or indirectly, by such Person.

      1.2 Accounting Terms.  Except as specifically  provided  otherwise in this
Agreement,  all accounting terms used herein that are not  specifically  defined
shall have the meanings  customarily given them, and all financial  computations
hereunder  shall be made,  in  accordance  with  Generally  Accepted  Accounting
Principles.  Notwithstanding  the  foregoing,  in the event that any  changes in
Generally Accepted  Accounting  Principles after the date hereof are required to
be applied to the transactions described herein and would affect the computation
of the financial covenants contained in Sections 7.1 through 7.4, as applicable,
such changes shall be followed only from and after the date this Agreement shall
have been amended to take into account any such changes.

      1.3 Other Terms;  Construction.  Unless otherwise  specified or unless the
context  otherwise  requires,  all  references  herein  to  sections,   annexes,
schedules  and  exhibits are  references  to sections,  annexes,  schedules  and


                                       19
<PAGE>

exhibits in and to this Agreement, and all terms defined in this Agreement shall
have  the  defined  meanings  when  used in any  other  Credit  Document  or any
certificate or other document made or delivered  pursuant hereto. All references
herein to the  Lenders  or any of them shall be deemed to  include  the  Issuing
Lender and the Swingline Lender unless specifically provided otherwise or unless
the context otherwise requires.


                                   ARTICLE II

                          AMOUNT AND TERMS OF THE LOANS

      2.1 Commitments;  Loans. (a) Each Lender severally agrees,  subject to and
on the terms and conditions of this Agreement, to make loans (each, a "Revolving
Loan," and collectively,  the "Revolving  Loans") to the Borrower,  from time to
time on any Business Day during the period from and  including  the Closing Date
to but not including the Termination  Date, in an aggregate  principal amount at
any time  outstanding not greater than the excess,  if any, of its Commitment at
such time over its  Letter of Credit  Exposure  at such time,  provided  that no
Borrowing of Revolving Loans shall be made if,  immediately  after giving effect
thereto,  the sum of (x) the  aggregate  principal  amount  of  Revolving  Loans
outstanding  at such time,  (y) the aggregate  Letter of Credit  Exposure of all
Lenders at such time and (z) the aggregate  principal  amount of Swingline Loans
outstanding at such time (excluding the aggregate  amount of any Swingline Loans
to be repaid with proceeds of Revolving  Loans made pursuant to such  Borrowing)
would exceed the Aggregate Commitments at such time. Subject to and on the terms
and conditions of this  Agreement,  the Borrower may borrow,  repay and reborrow
Revolving Loans.

      (b)  The  Swingline  Lender  agrees,  subject  to  and on  the  terms  and
conditions  of this  Agreement,  to make loans (each,  a  "Swingline  Loan," and
collectively,  the "Swingline Loans") to the Borrower,  from time to time on any
Business  Day during the period from the Closing Date to but not  including  the
Swingline Maturity Date (or, if earlier,  the Termination Date), in an aggregate
principal amount not exceeding the Swingline  Commitment,  notwithstanding  that
the aggregate  principal amount of Swingline Loans outstanding at any time, when
added to the  aggregate  principal  amount of the  Revolving  Loans  made by the
Swingline  Lender in its  capacity  as a Lender  outstanding  at such time,  may
exceed its  Commitment at such time, but provided that no Borrowing of Swingline
Loans shall be made if, immediately after giving effect thereto,  the sum of (x)
the aggregate  principal amount of Revolving Loans outstanding at such time, (y)
the aggregate  Letter of Credit Exposure of all Lenders at such time and (z) the
aggregate  principal  amount of Swingline  Loans  outstanding at such time would
exceed the Aggregate  Commitments at such time.  Subject to and on the terms and
conditions of this Agreement, the Borrower may borrow, repay (including by means
of a Borrowing  of  Revolving  Loans  pursuant to Section  2.2(d)) and  reborrow
Swingline Loans.

      2.2  Borrowings.  (a) The  Revolving  Loans  shall,  at the  option of the
Borrower and subject to the terms and  conditions of this  Agreement,  be either
Base Rate Loans or LIBOR Loans (each, a "Type" of Revolving Loan), provided that
(i) all Revolving Loans  comprising the same Borrowing  shall,  unless otherwise


                                       20
<PAGE>

specifically provided herein, be of the same Type and (ii) no Borrowing of LIBOR
Loans may be made at any time prior to the third  (3rd)  Business  Day after the
Closing Date. The Swingline Loans shall be Base Rate Loans at all times.

      (b) In order to make a Borrowing of Revolving Loans (other than Borrowings
for the  purpose of  repaying  Refunded  Swingline  Loans,  which  shall be made
pursuant to Section 2.2(d), and other than Borrowings involving continuations or
conversions  of  outstanding  Revolving  Loans,  which shall be made pursuant to
Section  2.10),  the Borrower will give the Agent written  notice not later than
12:00 noon,  Charlotte time,  three (3) Business Days prior to each Borrowing to
be  comprised of LIBOR Loans and on the  intended  date of each  Borrowing to be
comprised of Base Rate Loans; provided,  however, that a request for a Borrowing
to be made on the Closing  Date may, at the  discretion  of the Agent,  be given
later  than the time  specified  therefor  as set forth  hereinabove.  Each such
notice (each, a "Notice of Revolving Borrowing") shall be irrevocable,  shall be
given in the form of Exhibit B-1 and shall specify (x) the  aggregate  principal
amount and  initial  Type of the  Revolving  Loans to be made  pursuant  to such
Borrowing,  (y) in the case of a Borrowing of LIBOR Loans,  the initial Interest
Period to be applicable  thereto,  and (z) the requested  Borrowing Date,  which
shall be a Business  Day.  Notwithstanding  anything to the  contrary  contained
herein:

          (i) the aggregate principal amount of each Borrowing comprised of Base
     Rate Loans shall not be less than  $1,000,000  or, if greater,  an integral
     multiple of $500,000 in excess  thereof (or, if less,  in the amount of the
     Aggregate  Unutilized  Commitments),  and the aggregate principal amount of
     each Borrowing  comprised of LIBOR Loans shall not be less than  $2,000,000
     or, if greater, an integral multiple of $1,000,000 in excess thereof;

          (ii) if the  Borrower  shall  have  failed  to  designate  the Type of
     Revolving  Loans  comprising a Borrowing,  the Borrower  shall be deemed to
     have requested a Borrowing comprised of Base Rate Loans; and

          (iii) if the Borrower  shall have failed to select the duration of the
     Interest Period to be applicable to any Borrowing of LIBOR Loans,  then the
     Borrower  shall be  deemed  to have  selected  an  Interest  Period  with a
     duration of one month.

Upon its receipt of a Notice of  Revolving  Borrowing,  the Agent will  promptly
notify  each  Lender  of the  proposed  Borrowing.  Not later  than  1:00  p.m.,
Charlotte time, on the requested Borrowing Date, each Lender will make available
to the  Agent at its  office  referred  to in  Section  11.5  (or at such  other
location as the Agent may  designate) an amount,  in Dollars and in  immediately
available  funds,  equal to the amount of the Revolving  Loan to be made by such
Lender.  To the extent the Lenders have made such amounts available to the Agent
as  provided  hereinabove,  the Agent will make the  aggregate  of such  amounts
available to the Borrower in accordance with Section 2.3(a) and in like funds as
received by the Agent.

      (c) In order to make a Borrowing of a Swingline  Loan,  the Borrower  will
give the Agent and the Swingline  Lender written notice (or oral notice promptly
confirmed in writing) not later than 12:00 noon, Charlotte time, on the Business
Day  of  such  Borrowing.  Each  such  notice  (each,  a  "Notice  of  Swingline
Borrowing") shall be irrevocable, shall be given in the form of Exhibit B-2 (or,
if oral notice is given,  shall be promptly  followed with a writing in the form


                                       21
<PAGE>

of Exhibit B-2) and shall specify (i) the principal amount of the Swingline Loan
to be made pursuant to such Borrowing (which shall not be less than $50,000 and,
if greater,  shall be in an integral  multiple of $10,000 in excess thereof (or,
if less, in the amount of the  Unutilized  Swingline  Commitment))  and (ii) the
requested  Borrowing  Date,  which shall be a Business  Day. Not later than 1:00
p.m., Charlotte time, on the requested Borrowing Date, the Swingline Lender will
make  available  to the Agent at its office  referred to in Section  11.5 (or at
such other  location as the Agent may  designate)  an amount,  in Dollars and in
immediately  available  funds,  equal to the amount of the  requested  Swingline
Loan. To the extent the Swingline  Lender has made such amount  available to the
Agent as provided hereinabove,  the Agent will make such amount available to the
Borrower in accordance  with Section 2.3(a) and in like funds as received by the
Agent.

      (d) With respect to any outstanding  Swingline Loans, the Swingline Lender
may at any time (without  regard to whether an Event of Default has occurred and
is continuing) in its sole and absolute discretion, and is hereby authorized and
empowered by the  Borrower  to, cause a Borrowing of Revolving  Loans to be made
for the purpose of repaying such Swingline  Loans by delivering to the Agent and
each other  Lender (on behalf of, and with a copy to, the  Borrower),  not later
than 11:00 a.m.,  Charlotte  time, on the proposed  Borrowing Date  therefor,  a
notice (which shall be deemed to be a Notice of Revolving Borrowing given by the
Borrower)  requesting the Lenders to make  Revolving  Loans (which shall be made
initially as Base Rate Loans and shall remain as Base Rate Loans until repaid or
converted  into LIBOR  Loans  pursuant to the terms of this  Agreement)  on such
Borrowing  Date in an  aggregate  amount  equal to the amount of such  Swingline
Loans (the "Refunded  Swingline  Loans")  outstanding on the date such notice is
given that the Swingline Lender requests to be repaid. Not later than 1:00 p.m.,
Charlotte  time, on the requested  Borrowing  Date,  each Lender (other than the
Swingline  Lender) will make available to the Agent at its office referred to in
Section 11.5 (or at such other  location as the Agent may  designate) an amount,
in  Dollars  and in  immediately  available  funds,  equal to the  amount of the
Revolving  Loan to be made by such  Lender.  To the extent the Lenders have made
such amounts available to the Agent as provided hereinabove, the Agent will make
the aggregate of such amounts available to the Swingline Lender in like funds as
received  by the Agent,  which  shall  apply such  amounts in  repayment  of the
Refunded Swingline Loans. Notwithstanding any provision of this Agreement to the
contrary,   on  the  relevant  Borrowing  Date,  the  Refunded  Swingline  Loans
(including the Swingline  Lender's  ratable share thereof,  in its capacity as a
Lender)  shall be deemed to be repaid with the proceeds of the  Revolving  Loans
made as provided  above  (including a Revolving Loan deemed to have been made by
the Swingline Lender),  and such Refunded Swingline Loans deemed to be so repaid
shall no longer be  outstanding  as Swingline  Loans but shall be outstanding as
Revolving  Loans.  If any  portion  of any such  amount  repaid (or deemed to be
repaid)  to the  Swingline  Lender  shall be  recovered  by or on  behalf of the
Borrower  from the  Swingline  Lender in any  bankruptcy,  insolvency or similar
proceeding  or  otherwise,  the loss of the amount so recovered  shall be shared
ratably among all the Lenders in the manner contemplated by Section 2.14(b).

      (e) If, as a result of any  bankruptcy,  insolvency or similar  proceeding
with  respect  to the  Borrower,  Revolving  Loans  are  not  made  pursuant  to
subsection  (d) above in an amount  sufficient  to repay any amounts owed to the
Swingline  Lender in  respect  of any  outstanding  Swingline  Loans,  or if the
Swingline  Lender is otherwise  precluded for any reason from giving a notice on
behalf of the Borrower as provided for  hereinabove,  the Swingline Lender shall


                                       22
<PAGE>

be deemed to have sold without recourse,  representation  or warranty,  and each
Lender  shall be deemed to have  purchased  and  hereby  agrees to  purchase,  a
participation  in such  outstanding  Swingline  Loans in an amount  equal to its
ratable  share  (based  on the  proportion  that  its  Commitment  bears  to the
Aggregate  Commitments at such time) of the unpaid amount thereof  together with
accrued  interest  thereon.  Upon one (1)  Business  Day's prior notice from the
Swingline  Lender,  each Lender  (other  than the  Swingline  Lender)  will make
available  to the Agent at its office  referred  to in Section  11.5 (or at such
other  location  as the  Agent may  designate)  an  amount,  in  Dollars  and in
immediately  available  funds,  equal to its  respective  participation.  To the
extent the Lenders  have made such  amounts  available  to the Agent as provided
hereinabove,  the Agent will make the aggregate of such amounts available to the
Swingline  Lender in like funds as received by the Agent.  In the event any such
Lender  fails  to make  available  to the  Agent  the  amount  of such  Lender's
participation  as provided in this subsection (e), the Swingline Lender shall be
entitled  to recover  such  amount on demand  from such  Lender,  together  with
interest  thereon  for each day from the date such amount is required to be made
available for the account of the Swingline  Lender until the date such amount is
made  available to the Swingline  Lender at the Federal Funds Rate for the first
three (3)  Business  Days and  thereafter  at the Adjusted  Base Rate.  Promptly
following  its receipt of any payment by or on behalf of the Borrower in respect
of a  Swingline  Loan,  the  Swingline  Lender  will pay to each Lender that has
acquired a participation therein such Lender's ratable share of such payment.

      (f) Notwithstanding  any provision of this Agreement to the contrary,  the
obligation of each Lender (other than the  Swingline  Lender) to make  Revolving
Loans for the purpose of  repaying  any  Refunded  Swingline  Loans  pursuant to
subsection   (d)  above  and  each  such  Lender's   obligation  to  purchase  a
participation  in any unpaid  Swingline  Loans  pursuant to subsection (e) above
shall  be  absolute  and   unconditional  and  shall  not  be  affected  by  any
circumstance  or  event  whatsoever,  including,  without  limitation,  (i)  any
set-off,  counterclaim,  recoupment, defense or other right that such Lender may
have against the Swingline  Lender,  the Agent, the Borrower or any other Person
for any reason whatsoever,  (ii) the occurrence or continuance of any Default or
Event  of  Default,  (iii)  any  adverse  change  in the  business,  operations,
properties,  assets,  condition  (financial  or  otherwise)  or prospects of the
Borrower or any of its Subsidiaries, or (iv) any breach of this Agreement by any
party hereto;  provided,  however,  that no Lender shall have any  obligation to
make  a  Revolving  Loan  for  the  purpose  of  repaying,  or to  purchase  any
participation  in, any Swingline  Loan if, at the time of making such  Swingline
Loan,  the Swingline  Lender had actual  knowledge that the conditions to making
such Swingline Loan set forth herein were not satisfied or waived.

      2.3 Disbursements;  Funding Reliance;  Domicile of Loans. (a) The Borrower
hereby  authorizes  the Agent to  disburse  the  proceeds of each  Borrowing  in
accordance with the terms of any written instructions from any of the Authorized
Officers, provided that the Agent shall not be obligated under any circumstances
to forward amounts to any account not listed in an Account  Designation  Letter.
The Borrower may at any time deliver to the Agent an Account  Designation Letter
listing any  additional  accounts or deleting any accounts  listed in a previous
Account Designation Letter.

      (b) Unless the Agent has received,  prior to 1:00 p.m., Charlotte time, on
the relevant  Borrowing Date, written notice from a Lender that such Lender will
not make available to the Agent such Lender's  ratable  portion,  if any, of the
relevant Borrowing,  the Agent may assume that such Lender has made such portion


                                       23
<PAGE>

available to the Agent in immediately  available funds on such Borrowing Date in
accordance with the applicable  provisions of Section 2.2, and the Agent may, in
reliance  upon  such  assumption,   but  shall  not  be  obligated  to,  make  a
corresponding amount available to the Borrower on such Borrowing Date. If and to
the extent that such Lender  shall not have made such  portion  available to the
Agent, and the Agent shall have made such corresponding  amount available to the
Borrower,  such  Lender,  on the one  hand,  and  the  Borrower,  on the  other,
severally  agree to pay to the  Agent  forthwith  on demand  such  corresponding
amount, together with interest thereon for each day from the date such amount is
made  available  to the  Borrower  until the date  such  amount is repaid to the
Agent,  (i) in the case of such Lender,  at the Federal Funds Rate,  and (ii) in
the case of the  Borrower,  at the rate of interest  applicable  at such time to
Loans  comprising such Borrowing,  as determined under the provisions of Section
2.7. If such Lender  shall repay to the Agent such  corresponding  amount,  such
amount shall  constitute such Lender's  Revolving Loan as part of such Borrowing
for purposes of this Agreement.  The failure of any Lender to make any Revolving
Loan  required to be made by it as part of any  Borrowing  shall not relieve any
other Lender of its obligation,  if any, hereunder to make its Revolving Loan as
part of such  Borrowing,  but no Lender shall be responsible  for the failure of
any other Lender to make the  Revolving  Loan to be made by such other Lender as
part of any Borrowing.

      (c) Each Lender may, at its option,  make and  maintain any Loan at, to or
for the account of any of its Lending  Offices,  provided  that any  exercise of
such option shall not affect the  obligation  of the Borrower to repay such Loan
to or for the  account  of such  Lender  in  accordance  with the  terms of this
Agreement.

      2.4 Notes.  (a) The Revolving Loans made by each Lender shall be evidenced
by a Revolving Credit Note appropriately  completed in substantially the form of
Exhibit A-1. Each Revolving Credit Note issued to a Lender shall (i) be executed
by the Borrower,  (ii) be payable to the order of such Lender, (iii) be dated as
of the Closing Date, (iv) be in a stated principal amount equal to such Lender's
Commitment,  (v) bear interest in accordance with the provisions of Section 2.7,
as the same may be applicable  to the  Revolving  Loans made by such Lender from
time to time,  and (vi) be entitled to all of the benefits of this Agreement and
the other Credit Documents and subject to the provisions hereof and thereof.

      (b) The Swingline Loans made by the Swingline Lender shall be evidenced by
a Swingline Note  appropriately  completed in substantially  the form of Exhibit
A-2. The Swingline  Note shall (i) be executed by the Borrower,  (ii) be payable
to the order of the  Swingline  Lender,  (iii) be dated as of the Closing  Date,
(iv) be in a stated principal amount equal to the Swingline Commitment, (v) bear
interest in  accordance  with the  provisions of Section 2.7, as the same may be
applicable to the Swingline  Loans made from time to time,  and (vi) be entitled
to all of the  benefits of this  Agreement  and the other Credit  Documents  and
subject to the provisions hereof and thereof.

      (c) Each  Lender will  record on its  internal  records the amount of each
Loan made by it and each payment  received by it in respect thereof and will, in
the event of any  transfer  of any of its Notes,  either  endorse on the reverse
side thereof or on a schedule attached thereto (or any continuation thereof) the
outstanding  principal  amount of the Loans evidenced  thereby as of the date of
transfer  or provide  such  information  on a  schedule  to the  Assignment  and


                                       24
<PAGE>

Acceptance relating to such transfer; provided, however, that the failure of any
Lender to make any such  recordation  or provide  any such  information,  or any
error therein,  shall not affect the Borrower's obligations under this Agreement
or the Notes.

      2.5 Termination and Reduction of Commitments and Swingline Commitment. (a)
The  Commitments  shall  be  automatically  and  permanently  terminated  on the
Maturity  Date,  and  the  Swingline   Commitment  shall  be  automatically  and
permanently  terminated  on the  Swingline  Maturity  Date,  in each case unless
sooner terminated pursuant to subsections (b) or (c) below or Section 9.2.

      (b) At any time and from time to time after the date hereof, upon not less
than five (5) Business Days' prior written notice to the Agent (and, in the case
of a  termination  or  reduction of the  Unutilized  Swingline  Commitment,  the
Swingline  Lender),  the Borrower  may  terminate in whole or reduce in part the
Aggregate  Unutilized   Commitments  or  the  Unutilized  Swingline  Commitment,
provided that any such partial  reduction shall be in an aggregate amount of not
less  than  $5,000,000  ($1,000,000  in the  case  of the  Unutilized  Swingline
Commitment)  or, if greater,  an integral  multiple  thereof.  The amount of any
termination  or reduction  made under this  subsection (b) may not thereafter be
reinstated.

      (c) The Aggregate  Commitments shall, on each date upon which a prepayment
of the Loans is required under Sections 2.6(d) through 2.6(f),  be automatically
and  permanently  reduced  by an amount  equal to the  amount  of such  required
prepayment.

      (d) Each reduction of the  Commitments  pursuant to this Section 2.5 shall
be applied ratably among the Lenders according to their respective  Commitments.
Notwithstanding  any provision of this Agreement to the contrary,  any reduction
of the Commitments  pursuant to this Section 2.5 that has the effect of reducing
the  Aggregate  Commitments  to an amount less than the amount of the  Swingline
Commitment at such time shall result in an automatic  corresponding reduction of
the  Swingline  Commitment  to the amount of the  Aggregate  Commitments  (as so
reduced),  without  any  further  action  on the  part  of the  Borrower  or the
Swingline Lender.

      2.6 Voluntary and Mandatory Payments and Prepayments.  (a) At any time and
from time to time,  the  Borrower  shall have the right to prepay the  Revolving
Loans,  in whole or in part,  without  premium or penalty (except as provided in
clause (iii) below), upon written notice to the Agent given not later than 12:00
noon,  Charlotte time, three (3) Business Days prior to each intended prepayment
of LIBOR Loans and on the day of each  intended  prepayment  of Base Rate Loans,
provided  that (i) each partial  prepayment  of  Revolving  Loans shall be in an
aggregate  principal  amount of not less than  $1,000,000  or,  if  greater,  an
integral multiple of $500,000 in excess thereof,  (ii) no partial  prepayment of
LIBOR Loans made  pursuant to any single  Borrowing  shall reduce the  aggregate
outstanding  principal  amount of the remaining LIBOR Loans under such Borrowing
to less than  $2,000,000  or to any greater  amount not an integral  multiple of
$1,000,000  in excess  thereof,  and (iii) unless made together with all amounts
required  under Section 2.18 to be paid as a consequence of such  prepayment,  a
prepayment  of a LIBOR  Loan may be made  only on the  last day of the  Interest
Period applicable  thereto.  Each such notice shall specify the proposed date of
such  prepayment  and  the  aggregate  principal  amount  and the  Types  of the
Revolving  Loans to be prepaid  (and,  in the case of LIBOR Loans,  the Interest
Period of the  Borrowing  pursuant to which made) and shall be  irrevocable  and


                                       25
<PAGE>

shall bind the Borrower to make such prepayment on the terms specified  therein.
The  Borrower may prepay the  Swingline  Loans at any time and from time to time
after the date hereof, in whole or in part, without notice,  premium or penalty,
provided  that  each  partial  prepayment  of  Swingline  Loans  shall  be in an
aggregate  principal amount of not less than $50,000 or, if greater, an integral
multiple  of  $10,000  in  excess  thereof.  Amounts  prepaid  pursuant  to this
subsection  (a) may be  reborrowed,  subject to the terms and conditions of this
Agreement.

      (b) Except to the extent due or made sooner  pursuant to the provisions of
this  Agreement,  the Borrower  will repay the aggregate  outstanding  principal
amount of the  Revolving  Loans in full on the Maturity  Date and will repay the
aggregate  outstanding  principal  amount of the Swingline  Loans in full on the
Swingline Maturity Date.

      (c) In the event that, at any time, the sum of (x) the aggregate principal
amount of Revolving Loans  outstanding at such time, (y) the aggregate Letter of
Credit  Exposure  of all  Lenders at such time and (z) the  aggregate  principal
amount of Swingline  Loans  outstanding  at such time  (excluding  the aggregate
amount of any Swingline Loans to be repaid with proceeds of Revolving Loans made
on the date of  determination)  shall exceed the Aggregate  Commitments  at such
time (after giving effect to any concurrent  termination or reduction  thereof),
the Borrower will  immediately  prepay the outstanding  principal  amount of the
Loans in the amount of such  excess;  provided  that,  to the extent such excess
amount is  greater  than the  aggregate  principal  amount of Loans  outstanding
immediately  prior to the application of such prepayment,  the amount so prepaid
shall be retained by the Agent and held in the Cash Collateral  Account as cover
for the Letter of Credit Exposure of the Lenders, as more particularly described
in Section 3.8, and thereupon  such cash shall be deemed to reduce the aggregate
Letter of Credit Exposure by an equivalent amount.

      (d) Promptly  upon (and in any event not later than two (2) Business  Days
after) its receipt thereof,  the Borrower will prepay the outstanding  principal
amount of the Loans in an amount equal to (i) 50% of the Net Cash  Proceeds from
any  Equity  Issuance,  or (ii)  100% of the Net  Cash  Proceeds  from  any Debt
Issuance;  provided,  however, that the Borrower shall be required to prepay the
Loans  with  only 50% of the Net Cash  Proceeds  from  any  Debt  Issuance  that
satisfies  the  requirements  of Section  8.2(vi) so long as  immediately  after
giving effect to such Debt Issuance,  the Leverage Ratio would be less than 1.75
to 1.0,  such ratio to be  determined  on a pro forma basis in  accordance  with
Generally Accepted Accounting Principles as of the last day of the most recently
ended fiscal  quarter as if such Debt Issuance had been effected as of such date
and as if all Indebtedness  outstanding on the date of such Debt Issuance (after
giving effect to any actual repayment of Indebtedness with proceeds of such Debt
Issuance) had been  outstanding  as of the last day of the most  recently  ended
fiscal  quarter;  and the  Borrower  will in each  case  deliver  to the  Agent,
concurrently with such prepayment,  a certificate  signed by its chief financial
officer in form and  substance  satisfactory  to the Agent and setting forth the
calculation of such Net Cash Proceeds.

      (e) Not  later  than  180  days  after  its  receipt  of any  proceeds  of
insurance,  condemnation  award or other compensation in respect of any Casualty
Event (and in any event  upon its  determination  not to repair or  replace  any
property  subject  to  such  Casualty  Event),  the  Borrower  will  prepay  the
outstanding  principal amount of the Loans in an amount equal to 100% of the Net
Cash Proceeds from such Casualty Event (less any amounts  theretofore applied to


                                       26
<PAGE>

the repair or replacement of property  subject to such Casualty  Event) and will
deliver to the Agent, concurrently with such prepayment, a certificate signed by
its chief financial officer in form and substance  satisfactory to the Agent and
setting forth the calculation of such Net Cash Proceeds; provided, however, that
no such  prepayment  shall be required  until the  aggregate  amount of Net Cash
Proceeds from any Casualty  Event (less any amounts  theretofore  applied to the
repair or replacement of affected  property) exceeds $500,000,  but at such time
the  cumulative  aggregate  amount  of such Net Cash  Proceeds  not  theretofore
subject  to  prepayment  under  this  subsection  (e) shall  become  subject  to
prepayment.

      (f) Not later than 180 days after its receipt  thereof,  the Borrower will
prepay the outstanding  principal amount of the Loans in an amount equal to 100%
of  the  Net  Cash  Proceeds  from  any  Asset  Disposition  (less  any  amounts
theretofore  expended to acquire assets or properties or otherwise reinvested in
its  businesses)  and  will  deliver  to  the  Agent,   concurrently  with  such
prepayment,  a  certificate  signed by its chief  financial  officer in form and
substance  satisfactory  to the Agent and setting forth the  calculation of such
Net Cash  Proceeds;  provided,  however,  that  such  prepayment  shall  only be
required to the extent the  aggregate  amount of Net Cash Proceeds from all such
Asset  Dispositions  made from and  after the  Closing  Date  (less any  amounts
theretofore  expended to acquire  assets or properties or otherwise  reinvested)
exceeds $1,000,000.  Notwithstanding  the foregoing,  nothing in this subsection
(f) shall be deemed to permit  any Asset  Disposition  not  expressly  permitted
under Section 8.4.

      (g) Each  prepayment of the Loans made pursuant to subsections (c) through
(f) above shall be applied ratably among the Lenders holding Loans in proportion
to the  principal  amount  held by  each,  and in the case of  prepayments  made
pursuant to subsections (d) through (f) above, with a corresponding reduction to
the Commitments as provided in Section 2.5(c).  Each prepayment made pursuant to
subsections (c) through (f) above shall be applied to prepay all Swingline Loans
(together  with all accrued  interest  thereon)  before any Revolving  Loans are
prepaid and, as among Revolving Loans,  shall be applied to prepay all Base Rate
Loans before any LIBOR Loans are prepaid.

      (h) Each  payment  or  prepayment  of a LIBOR  Loan made  pursuant  to the
provisions  of this Section 2.6 on a day other than the last day of the Interest
Period applicable thereto shall be made together with all amounts required under
Section 2.18 to be paid as a consequence thereof.

      2.7 Interest.  (a) The Borrower will pay interest in respect of the unpaid
principal  amount of each Loan,  from the date of Borrowing  thereof  until such
principal  amount shall be paid in full,  (i) at the Adjusted  Base Rate,  as in
effect from time to time  during such  periods as such Loan is a Base Rate Loan,
and (ii) at the Adjusted  LIBOR Rate, as in effect from time to time during such
periods as such Loan is a LIBOR Loan.

      (b) Upon the occurrence and during the  continuance of an Event of Default
under  Section  9.1(a) or Section  9.1(b),  and (at the election of the Required
Lenders) upon the  occurrence  and during the  continuance of any other Event of
Default,  all  outstanding  principal  amounts of the Loans and, to the greatest
extent permitted by law, all interest accrued on the Loans and all other accrued
and outstanding  fees and amounts  hereunder,  shall bear interest at a rate per
annum equal to the interest rate applicable from time to time thereafter to such


                                       27
<PAGE>

Loans  (whether the Adjusted Base Rate or the Adjusted  LIBOR Rate) plus 2% (or,
in the case of fees and other amounts,  at the Adjusted Base Rate plus 2%), and,
in each case, such default interest shall be payable on demand.  To the greatest
extent  permitted by law,  interest shall continue to accrue after the filing by
or against the  Borrower of any  petition  seeking any relief in  bankruptcy  or
under any law pertaining to insolvency or debtor relief.

      (c) Accrued (and theretofore unpaid) interest shall be payable as follows:

          (i) in respect of each Base Rate Loan (including any Base Rate Loan or
     portion thereof paid or prepaid  pursuant to the provisions of Section 2.6,
     except as provided  hereinbelow),  in arrears on the last  Business  Day of
     each fiscal  quarter,  beginning with the first such day to occur after the
     Closing Date;  provided,  that in the event the Loans are repaid or prepaid
     in full and the Commitments have been terminated,  then accrued interest in
     respect  of all  Base  Rate  Loans  shall be  payable  together  with  such
     repayment or prepayment on the date thereof;

          (ii) in  respect  of each  LIBOR  Loan  (including  any LIBOR  Loan or
     portion thereof paid or prepaid  pursuant to the provisions of Section 2.6,
     except as provided hereinbelow), in arrears (y) on the last Business Day of
     the Interest Period applicable thereto (subject to the provisions of clause
     (iv) in Section 2.9) and (z) in addition,  in the case of a LIBOR Loan with
     an  Interest  Period  having a duration  of six  months,  on the date three
     months after the first day of such Interest Period;  provided,  that in the
     event all LIBOR  Loans made  pursuant to a single  Borrowing  are repaid or
     prepaid in full, then accrued interest in respect of such LIBOR Loans shall
     be payable  together with such repayment or prepayment on the date thereof;
     and

          (iii) in  respect  of any  Loan,  at  maturity  (whether  pursuant  to
     acceleration or otherwise) and, after maturity, on demand.

      (d) Nothing  contained in this  Agreement or in any other Credit  Document
shall be deemed to establish or require the payment of interest to any Lender at
a rate in excess of the maximum rate permitted by applicable  law. If the amount
of interest  payable for the account of any Lender on any interest  payment date
would exceed the maximum  amount  permitted by  applicable  law to be charged by
such  Lender,  the amount of interest  payable for its account on such  interest
payment date shall be automatically  reduced to such maximum permissible amount.
In the event of any such  reduction  affecting any Lender,  if from time to time
thereafter the amount of interest  payable for the account of such Lender on any
interest  payment  date  would be less  than the  maximum  amount  permitted  by
applicable law to be charged by such Lender, then the amount of interest payable
for its account on such subsequent  interest payment date shall be automatically
increased to such maximum permissible amount, provided that at no time shall the
aggregate  amount by which  interest paid for the account of any Lender has been
increased  pursuant  to this  sentence  exceed  the  aggregate  amount  by which
interest  paid for its  account has  theretofore  been  reduced  pursuant to the
previous sentence.

      (e) The Agent shall  promptly  notify the  Borrower  and the Lenders  upon
determining  the  interest  rate for each  Borrowing  of LIBOR  Loans  after its
receipt  of  the   relevant   Notice  of   Revolving   Borrowing  or  Notice  of
Conversion/Continuation;  provided,  however,  that the  failure of the Agent to


                                       28
<PAGE>

provide the Borrower or the Lenders with any such notice  shall  neither  affect
any  obligations  of the  Borrower  or the Lenders  hereunder  nor result in any
liability  on the part of the Agent to the  Borrower  or any  Lender.  Each such
determination  (including each determination of the Reserve  Requirement) shall,
absent manifest error, be conclusive and binding on all parties hereto.

      2.8 Fees. The Borrower agrees to pay:

      (a) To First  Union (or,  at First  Union's  request,  to the  Arranger or
another  designated  Affiliate  of First  Union),  for its own  account,  on the
Closing  Date,  the fee  described  in paragraph  (l) of the Fee Letter,  in the
amount set forth therein and to the extent not  theretofore  paid to First Union
(or to the Arranger or any such other First Union Affiliate);

      (b) To the Agent,  for the ratable account of the Lenders that are parties
hereto as of the  Closing  Date,  on the  Closing  Date,  the fee  described  in
paragraph (2) of the Fee Letter,  in the amount agreed upon by the Agent and the
Borrower pursuant thereto and to the extent not theretofore paid to the Agent;

      (c) To the Agent, for the account of each Lender, a commitment fee for the
period from the date of this Agreement to the  Termination  Date, at a per annum
rate equal to the applicable  Margin  Percentage on such Lender's  ratable share
(based on the proportion that its Commitment bears to the Aggregate Commitments)
of the average daily Aggregate Unutilized Commitments, payable in arrears (i) on
the last Business Day of each fiscal quarter,  beginning with the first such day
to occur after the Closing Date, and (ii) on the Termination Date;

      (d) To the Agent,  for the account of each Lender,  a letter of credit fee
for each calendar quarter in respect of all Letters of Credit outstanding during
such quarter,  at a per annum rate equal to the applicable Margin Percentage for
LIBOR Loans in effect from time to time  during  such  quarter on such  Lender's
ratable  share  (based  on the  proportion  that  its  Commitment  bears  to the
Aggregate  Commitments)  of the daily  average  aggregate  Stated Amount of such
Letters of  Credit,  payable in  arrears  (i) on the last  Business  Day of each
fiscal  quarter,  beginning  with the first such day to occur  after the Closing
Date, and (ii) on the later of the Termination  Date and the date of termination
of the last outstanding Letter of Credit;

      (e) To the  Issuing  Lender,  for its own  account,  a facing fee for each
calendar  quarter in respect of all  Letters of Credit  outstanding  during such
quarter,  at a per annum rate of 0.125% on the daily  average  aggregate  Stated
Amount of such  Letters of Credit,  payable in arrears (i) on the last  Business
Day of each fiscal quarter, beginning with the first such day to occur after the
Closing  Date,  and (ii) on the  later of the  Termination  Date and the date of
termination of the last outstanding Letter of Credit; and

      (f) To the  Agent,  for its own  account,  the annual  administrative  fee
described in paragraph (3) of the Fee Letter, on the terms, in the amount and at
the times set forth therein.

      2.9  Interest  Periods.  Concurrently  with  the  giving  of a  Notice  of
Revolving  Borrowing  or Notice of  Conversion/Continuation  in  respect  of any
Borrowing  comprised of LIBOR Loans, the Borrower shall have the right to elect,
pursuant to such notice,  the interest period (each, an "Interest Period") to be


                                       29
<PAGE>

applicable to such LIBOR Loans,  which Interest  Period shall,  at the option of
the Borrower, be a one, three or six-month period; provided, however, that:

          (i) all LIBOR Loans  comprising a single  Borrowing shall at all times
     have the same Interest Period;

          (ii) the initial  Interest Period for any LIBOR Loan shall commence on
     the date of the  Borrowing  of such LIBOR Loan  (including  the date of any
     continuation  of, or conversion into, such LIBOR Loan), and each successive
     Interest Period  applicable to such LIBOR Loan shall commence on the day on
     which the next preceding Interest Period applicable thereto expires;

          (iii)  LIBOR  Loans may not be  outstanding  under more than seven (7)
     separate  Interest  Periods  at any one time (for  which  purpose  Interest
     Periods shall be deemed to be separate even if they are coterminous);

          (iv) if any Interest  Period  otherwise  would expire on a day that is
     not a  Business  Day,  such  Interest  Period  shall  expire  on  the  next
     succeeding  Business Day unless such next succeeding  Business Day falls in
     another  calendar month, in which case such Interest Period shall expire on
     the next preceding Business Day;

          (v) the Borrower may not select any Interest  Period that begins prior
     to the third  (3rd)  Business  Day after the Closing  Date or that  expires
     after the Maturity  Date;  

          (vi) if any  Interest  Period  begins on a day for  which  there is no
     numerically  corresponding  day in the  calendar  month  during  which such
     Interest Period would otherwise  expire,  such Interest Period shall expire
     on the last Business Day of such calendar month; and

          (vii) if, upon the expiration of any Interest  Period  applicable to a
     Borrowing  of LIBOR Loans,  the  Borrower  shall have failed to elect a new
     Interest  Period to be  applicable  to such LIBOR Loans,  then the Borrower
     shall be deemed to have  elected to convert such LIBOR Loans into Base Rate
     Loans as of the expiration of the then current  Interest Period  applicable
     thereto.

      2.10 Conversions and Continuations. (a) The Borrower shall have the right,
on any Business  Day  occurring  on or after the Closing  Date,  to elect (i) to
convert all or a portion of the  outstanding  principal  amount of any Base Rate
Loans into LIBOR Loans,  or to convert any LIBOR Loans the Interest  Periods for
which end on the same day into Base Rate  Loans,  or (ii) to  continue  all or a
portion of the  outstanding  principal  amount of any LIBOR  Loans the  Interest
Periods  for  which  end on the  same  day for an  additional  Interest  Period,
provided that (w) any such  conversion of LIBOR Loans into Base Rate Loans shall
involve  an  aggregate  principal  amount  of not less  than  $1,000,000  or, if
greater, an integral multiple of $500,000 in excess thereof; any such conversion
of Base Rate Loans into,  or  continuation  of,  LIBOR  Loans  shall  involve an
aggregate  principal  amount of not less than  $2,000,000  or,  if  greater,  an
integral multiple of $1,000,000 in excess thereof;  and no partial conversion of
LIBOR Loans made  pursuant to a single  Borrowing  shall reduce the  outstanding
principal  amount of such LIBOR Loans to less than  $2,000,000 or to any greater
amount not an integral  multiple of $1,000,000 in excess thereof,  (x) except as


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<PAGE>

otherwise  provided in Section  2.16(d),  LIBOR Loans may be converted into Base
Rate Loans only on the last day of the Interest Period applicable  thereto (and,
in any  event,  if a LIBOR  Loan is  converted  into a Base Rate Loan on any day
other than the last day of the Interest Period applicable thereto,  the Borrower
will pay, upon such  conversion,  all amounts  required under Section 2.18 to be
paid as a consequence thereof),  (y) no such conversion or continuation shall be
permitted with regard to any Base Rate Loans that are Swingline  Loans,  and (z)
no conversion of Base Rate Loans into LIBOR Loans or continuation of LIBOR Loans
shall be permitted during the continuance of a Default or Event of Default.

      (b) The Borrower shall make each such election by giving the Agent written
notice not later than 12:00 noon,  Charlotte time, three (3) Business Days prior
to the intended  effective  date of any  conversion  of Base Rate Loans into, or
continuation  of,  LIBOR  Loans  and  on  the  intended  effective  date  of any
conversion  of LIBOR  Loans into Base Rate  Loans.  Each such  notice  (each,  a
"Notice of Conversion/Continuation") shall be irrevocable, shall be given in the
form of  Exhibit  B-3 and  shall  specify  (x) the  date of such  conversion  or
continuation  (which shall be a Business  Day),  (y) in the case of a conversion
into, or a continuation  of, LIBOR Loans,  the Interest  Period to be applicable
thereto,  and (z) the  aggregate  amount and Type of the  Revolving  Loans being
converted or continued. Upon the receipt of a Notice of Conversion/Continuation,
the Agent  will  promptly  notify  each  Lender of the  proposed  conversion  or
continuation.  In the event that the Borrower  shall fail to deliver a Notice of
Conversion/Continuation as provided herein with respect to any outstanding LIBOR
Loans, such LIBOR Loans shall automatically be converted to Base Rate Loans upon
the expiration of the then current  Interest Period  applicable  thereto (unless
repaid pursuant to the terms hereof).

      2.11 Method of  Payments;  Computations.  (a) All payments by the Borrower
hereunder  shall be made  without  setoff,  counterclaim  or other  defense,  in
Dollars and in immediately  available funds to the Agent, for the account of the
Lenders or the Swingline  Lender, as applicable  (except as otherwise  expressly
provided  herein as to  payments  required  to be made  directly  to the Issuing
Lender and the Lenders) at its office referred to in Section 11.5, prior to 1:00
p.m.,  Charlotte  time, on the date payment is due. Any payment made as required
hereinabove,  but after 1:00 p.m.,  Charlotte time, shall be deemed to have been
made on the next succeeding Business Day. If any payment falls due on a day that
is not a  Business  Day,  then  such due  date  shall  be  extended  to the next
succeeding  Business  Day  (except  that in the case of LIBOR Loans to which the
proviso of clause (iv) in Section 2.9 is applicable,  such due date shall be the
next preceding  Business Day), and such extension of time shall then be included
in the computation of payment of interest, fees or other applicable amounts.

      (b) The Agent will  distribute  to the Lenders  like  amounts  relating to
payments made to the Agent for the account of the Lenders as follows: (i) if the
payment is received  by 1:00 p.m.,  Charlotte  time,  in  immediately  available
funds,  the Agent will make available to each relevant  Lender on the same date,
by wire transfer of immediately  available funds, such Lender's ratable share of
such payment  (based on the percentage  that the amount of the relevant  payment
owing to such Lender bears to the total  amount of such payment  owing to all of
the relevant  Lenders),  and (ii) if such  payment is received  after 1:00 p.m.,
Charlotte time, or in other than  immediately  available  funds,  the Agent will
make  available  to each such Lender its ratable  share of such  payment by wire
transfer of immediately  available funds on the next succeeding Business Day (or
in the case of uncollected  funds, as soon as practicable after  collected).  If


                                       31
<PAGE>

the Agent shall not have made a required distribution to the appropriate Lenders
as  required  hereinabove  after  receiving  a payment  for the  account of such
Lenders, the Agent will pay to each such Lender, on demand, its ratable share of
such payment with  interest  thereon at the Federal Funds Rate for each day from
the date such amount was  required to be  disbursed  by the Agent until the date
repaid to such  Lender.  The Agent will  distribute  to the Issuing  Lender like
amounts  relating to  payments  made to the Agent for the account of the Issuing
Lender in the same manner, and subject to the same terms and conditions,  as set
forth hereinabove with respect to distributions of amounts to the Lenders.

      (c) Unless the Agent shall have received  written notice from the Borrower
prior to the date on which any payment is due to any Lender  hereunder that such
payment  will not be made in full,  the Agent may assume that the  Borrower  has
made such  payment  in full to the Agent on such  date,  and the Agent  may,  in
reliance  on such  assumption,  but  shall  not be  obligated  to,  cause  to be
distributed  to such Lender on such due date an amount  equal to the amount then
due to such  Lender.  If and to the extent the  Borrower  shall not have so made
such payment in full to the Agent,  and without  limiting the  obligation of the
Borrower to make such payment in accordance  with the terms hereof,  such Lender
shall repay to the Agent  forthwith on demand such amount so distributed to such
Lender, together with interest thereon for each day from the date such amount is
so distributed to such Lender until the date repaid to the Agent, at the Federal
Funds Rate.

      (d)  With  respect  to each  payment  hereunder,  except  as  specifically
provided otherwise herein or in any of the other Credit Documents,  the Borrower
may designate by written notice to the Agent prior to or concurrently  with such
payment the specific Loans or other  Obligations that are to be paid,  repaid or
prepaid,  provided that (i) unless made together with all amounts required under
Section 2.18 to be paid as a consequence  thereof,  a prepayment of a LIBOR Loan
may be made only on the last day of the Interest Period applicable thereto,  and
(ii) each payment on account of any Obligations to or for the account of any one
or more Lenders shall be apportioned ratably among such Lenders in proportion to
the amounts of such Obligations owed to them respectively. In the absence of any
such designation by the Borrower,  or if an Event of Default has occurred and is
continuing,  the Agent shall make such  designation in its sole discretion or as
the  Required  Lenders may  direct,  subject to the  foregoing  and to the other
provisions of this Agreement and provided that,  notwithstanding  the foregoing,
any  payments  received by the Agent under any  circumstances  described in this
sentence  shall be  applied  first  to repay  all  outstanding  Swingline  Loans
together with all accrued interest thereon.

      (e)  All   computations   of  interest  and  fees   hereunder   (including
computations  of the Reserve  Requirement)  shall be made on the basis of a year
consisting  of 365 or 366 days,  as the case may be (in the case of  interest on
Base Rate Loans), or 360 days (in all other instances), and the actual number of
days (including the first day, but excluding the last day) elapsed.

      2.12 Recovery of Payments.  (a) The Borrower agrees that to the extent the
Borrower  makes a payment or payments  to or for the  account of the Agent,  the
Issuing Lender or any Lender,  which payment or payments or any part thereof are
subsequently invalidated,  declared to be fraudulent or preferential,  set aside
or  required  to be repaid to a trustee,  receiver  or any other party under any
bankruptcy,  insolvency or similar state or federal law, common law or equitable


                                       32
<PAGE>

cause, then, to the extent of such payment or repayment, the Obligation intended
to be  satisfied  shall be revived and  continued in full force and effect as if
such payment had not been received.

      (b) If any amounts distributed by the Agent to any Lender are subsequently
returned  or  repaid  by the  Agent to the  Borrower  or its  representative  or
successor in interest,  whether by court order or by settlement  approved by the
Lender in question,  such Lender will,  promptly upon receipt of notice  thereof
from the Agent, pay the Agent such amount.  If any such amounts are recovered by
the Agent from the Borrower or its representative or successor in interest,  the
Agent will  redistribute  such  amounts to the Lenders on the same basis as such
amounts were originally distributed.

      2.13 Use of  Proceeds.  The proceeds of the Loans shall be used solely (i)
to repay the Terminating  Senior  Indebtedness in full, (ii) to pay or reimburse
reasonable  transaction  fees and expenses in connection  with the  transactions
described  in  clause  (i)  above  and  the  consummation  of  the  transactions
contemplated  hereby,  and (iii)  for  working  capital  and  general  corporate
purposes  and  to  finance  stock  repurchases  and  Permitted  Acquisitions  in
accordance with the terms and provisions of this Agreement,  including,  without
limitation, the provisions set forth in Sections 6.9 and 8.6.

      2.14  Pro  Rata  Treatment;   Sharing  of  Payments.   (a)  All  fundings,
continuations  and  conversions of Revolving  Loans shall be made by the Lenders
pro  rata on the  basis  of  their  respective  Commitments  (in the case of the
initial  funding of any Revolving Loans pursuant to Sections  2.2(b),  2.2(d) or
2.2(e)) or Revolving  Loans (in the case of  continuations  and  conversions  of
outstanding  Revolving  Loans pursuant to Section 2.10), as applicable from time
to time.

      (b) Each  Lender  agrees  that if it shall  receive  any amount  hereunder
(whether by voluntary payment,  realization upon security, exercise of the right
of setoff or banker's lien,  counterclaim or cross action,  or otherwise,  other
than  pursuant  to  Section  11.7)  applicable  to  the  payment  of  any of the
Obligations  that exceeds its ratable share  (according to the proportion of (i)
the amount of such  Obligations  due and  payable to such Lender at such time to
(ii) the aggregate  amount of such Obligations due and payable to all Lenders at
such time) of payments on account of such Obligations then or therewith obtained
by all the Lenders to which such  payments are required to have been made,  such
Lender shall forthwith  purchase from the other Lenders such  participations  in
such Obligations as shall be necessary to cause such purchasing  Lender to share
the  excess  payment  or other  recovery  ratably  with each of them;  provided,
however,  that  if all or any  portion  of such  excess  payment  is  thereafter
recovered from such purchasing Lender, such purchase from each such other Lender
shall be  rescinded  and each such other  Lender  shall repay to the  purchasing
Lender the  purchase  price to the  extent of such  recovery,  together  with an
amount equal to such other Lender's  ratable share  (according to the proportion
of (i) the amount of such other  Lender's  required  repayment to (ii) the total
amount so recovered from the purchasing  Lender) of any interest or other amount
paid or payable  by the  purchasing  Lender in  respect  of the total  amount so
recovered.  The Borrower  agrees that any Lender so  purchasing a  participation
from another Lender  pursuant to the provisions of this  subsection  may, to the
fullest  extent  permitted  by  law,  exercise  any and all  rights  of  payment
(including,  without  limitation,  setoff,  banker's lien or counterclaim)  with
respect  to such  participation  as fully as if such  participant  were a direct
creditor  of the  Borrower  in the  amount of such  participation.  If under any


                                       33
<PAGE>

applicable bankruptcy,  insolvency or similar law, any Lender receives a secured
claim in lieu of a setoff to which this subsection  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  entitled  under  this
subsection to share in the benefits of any recovery on such secured claim.

      2.15 Increase of the Aggregate Commitments.  (a) At any time following the
ninetieth day after the Closing Date,  provided no Event of Default has occurred
and is continuing,  the Borrower may notify the Agent and the Lenders in writing
of its desire to increase the Aggregate  Commitments  then existing by an amount
up to $20,000,000.

      (b) Upon its  receipt of  written  notice as set forth in  subsection  (a)
above,  properly  made,  the Agent,  in  consultation  with the Borrower,  shall
determine how best to increase the  Aggregate  Commitments  as requested,  which
strategies  may  include,   without   limitation,   solicitation  of  additional
commitments from existing Lenders (with any additional commitment by an existing
Lender being made in such Lender's sole discretion), solicitation of new Lenders
(each of which shall be a financial institution that is an Eligible Assignee), a
combination  thereof, or any other strategy deemed advisable by the Borrower and
the Agent;  provided,  however, that any such solicitation by the Agent shall be
made on a best-efforts basis only.

      (c) Upon receipt of any additional commitment from an existing Lender or a
new commitment  from a new Lender pursuant to this Section 2.15, the Agent shall
notify each Lender who is or becomes a party to this Agreement in writing of the
increase  in the  Aggregate  Commitments  effected  thereby  and  such  Lender's
percentage of the Aggregate Commitments as so increased.

      (d)  Within  five (5)  Business  Days  after  its  delivery  of  notice in
accordance with subsection (c) above,  the Borrower shall execute and deliver to
each Lender  providing an  additional or new  commitment a new Revolving  Credit
Note in an  amount  equal  to the  amount  of  such  Lender's  Commitment.  Such
Revolving  Credit  Note  shall be dated  the  effective  date of the  applicable
increase in the Aggregate  Commitments and shall otherwise be in the form of the
Revolving  Credit  Notes  delivered  pursuant  to  Section  2.4(a)  hereof.  Any
Revolving Credit Notes replaced  therewith shall be canceled and returned to the
Borrower.

      (e) As a condition  precedent to the  effectiveness of any increase in the
Aggregate  Commitments  pursuant to this Section 2.15, the Agent and each Lender
shall have received such other documents, certificates, opinions and instruments
in connection  with the  transactions  contemplated  by this Section as it shall
have reasonably requested.

      2.16 Increased Costs; Change in Circumstances; Illegality; etc. (a) If, at
any time after the date hereof and from time to time, the introduction of or any
change in any  applicable  law, rule or regulation or in the  interpretation  or
administration   thereof  by  any  Governmental   Authority   charged  with  the
interpretation or administration  thereof,  or compliance by any Lender with any
guideline or request from any such Governmental Authority (whether or not having
the force of law), shall (i) subject such Lender to any tax or other charge,  or
change the basis of taxation of  payments to such  Lender,  in respect of any of
its LIBOR Loans or any other  amounts  payable  hereunder or its  obligation  to
make,  fund or maintain  any LIBOR  Loans  (other than any change in the rate or


                                       34
<PAGE>

basis of tax on the overall net income of such Lender or its applicable  Lending
Office), (ii) impose, modify or deem applicable any reserve,  special deposit or
similar  requirement  (other  than as a  result  of any  change  in the  Reserve
Requirement)  against assets of,  deposits with or for the account of, or credit
extended by, such Lender or its applicable  Lending  Office,  or (iii) impose on
such Lender or its applicable  Lending Office any other condition  affecting its
LIBOR  Loans,  and the result of any of the  foregoing  shall be to increase the
cost to such  Lender of making or  maintaining  any LIBOR Loans or to reduce the
amount of any sum received or  receivable  by such Lender  hereunder  (including
with respect to Letters of Credit),  the  Borrower  will,  promptly  upon demand
therefor  by such  Lender  (which  demand  shall  be  accompanied  by a  written
explanation  in reasonable  detail,  showing the basis for such demand),  pay to
such Lender such  additional  amounts as shall  compensate  such Lender for such
increase in costs or reduction in return.

      (b) If, at any time  after  the date  hereof  and from  time to time,  any
Lender shall have reasonably  determined that the  introduction of or any change
in any applicable law, rule or regulation  regarding  capital adequacy or in the
interpretation or administration  thereof by any Governmental  Authority charged
with the interpretation or administration  thereof, or compliance by such Lender
with any guideline or request from any such Governmental  Authority  (whether or
not having the force of law), has or would have the effect,  as a consequence of
such  Lender's  Commitment,   Loans  or  participations  in  Letters  of  Credit
hereunder,  of reducing  the rate of return on the capital of such Lender or any
Person  controlling  such  Lender to a level  below that  which  such  Lender or
controlling  Person  could have  achieved but for such  introduction,  change or
compliance  (taking into account such Lender's or controlling  Person's policies
with respect to capital  adequacy),  the  Borrower  will,  promptly  upon demand
therefor by such Lender therefor (which demand shall be accompanied by a written
explanation  in reasonable  detail,  showing the basis for such demand),  pay to
such  Lender  such  additional   amounts  as  will  compensate  such  Lender  or
controlling Person for such reduction in return.

      (c) If, on or prior to the first day of any Interest Period, (y) the Agent
shall  have  determined  that  adequate  and  reasonable  means do not exist for
ascertaining the applicable LIBOR Rate for such Interest Period or (z) the Agent
shall  have  received   written  notice  from  the  Required  Lenders  of  their
determination  that the rate of interest referred to in the definition of "LIBOR
Rate" upon the basis of which the  Adjusted  LIBOR Rate for LIBOR Loans for such
Interest  Period is to be determined  will not adequately and fairly reflect the
cost to such Lenders of making or  maintaining  LIBOR Loans during such Interest
Period,  the Agent will  forthwith so notify the Borrower and the Lenders.  Upon
such notice,  (i) all then outstanding LIBOR Loans shall  automatically,  on the
expiration date of the respective  Interest Periods  applicable  thereto (unless
then repaid in full), be converted into Base Rate Loans,  (ii) the obligation of
the Lenders to make,  to convert  Base Rate Loans into,  or to  continue,  LIBOR
Loans shall be  suspended  (including  pursuant to the  Borrowing  to which such
Interest Period applies),  and (iii) any Notice of Revolving Borrowing or Notice
of  Conversion/Continuation  given at any time  thereafter with respect to LIBOR
Loans shall be deemed to be a request  for Base Rate  Loans,  in each case until
the Agent or the Required  Lenders,  as the case may be,  shall have  determined
that the  circumstances  giving rise to such suspension no longer exist (and the
Required  Lenders,  if making such  determination,  shall have so  notified  the
Agent), and the Agent shall have so notified the Borrower and the Lenders.

                                       35
<PAGE>

      (d) Notwithstanding any other provision in this Agreement, if, at any time
after the date hereof and from time to time, any Lender shall have determined in
good faith that the introduction of or any change in any applicable law, rule or
regulation  or  in  the   interpretation  or   administration   thereof  by  any
Governmental   Authority  charged  with  the  interpretation  or  administration
thereof,  or compliance with any guideline or request from any such Governmental
Authority (whether or not having the force of law), has or would have the effect
of making it unlawful for such Lender to make or to continue to make or maintain
LIBOR Loans,  such Lender will  forthwith so notify the Agent and the  Borrower.
Upon such notice,  (i) each of such Lender's then outstanding  LIBOR Loans shall
automatically,  on  the  expiration  date  of  the  respective  Interest  Period
applicable  thereto  (or, to the extent any such LIBOR Loan may not  lawfully be
maintained as a LIBOR Loan until such  expiration  date,  upon such notice),  be
converted into a Base Rate Loan,  (ii) the obligation of such Lender to make, to
convert  Base Rate Loans into,  or to  continue,  LIBOR Loans shall be suspended
(including  pursuant to any  Borrowing for which the Agent has received a Notice
of Revolving  Borrowing but for which the Borrowing  Date has not arrived),  and
(iii) any Notice of  Revolving  Borrowing  or Notice of  Conversion/Continuation
given at any time  thereafter  with  respect to LIBOR  Loans  shall,  as to such
Lender,  be deemed to be a request for a Base Rate Loan, in each case until such
Lender  shall  have  determined  that  the  circumstances  giving  rise  to such
suspension  no longer exist and shall have so notified the Agent,  and the Agent
shall have so notified the Borrower.

      (e) Determinations by the Agent or any Lender for purposes of this Section
2.16  of  any  increased  costs,  reduction  in  return,  market  contingencies,
illegality or any other matter shall,  absent  manifest  error,  be  conclusive,
provided  that such  determinations  are made in good  faith.  No failure by the
Agent or any Lender at any time to demand  payment of any amounts  payable under
this  Section 2.16 shall  constitute a waiver of its right to demand  payment of
any additional  amounts arising at any subsequent time.  Nothing in this Section
2.16 shall  require or be construed to require the Borrower to pay any interest,
fees, costs or other amounts in excess of that permitted by applicable law.

      2.17 Taxes.  (a) Any and all payments by the  Borrower  hereunder or under
any Note shall be made,  in accordance  with the terms hereof and thereof,  free
and clear of and  without  deduction  for any and all  present or future  taxes,
levies, imposts, deductions,  charges or withholdings,  and all liabilities with
respect thereto,  other than net income and franchise taxes imposed on the Agent
or any  Lender by the  United  States or by the  jurisdiction  under the laws of
which the Agent or such Lender, as the case may be, is organized or in which its
principal  office or (in the case of a Lender) its applicable  Lending Office is
located,  or any political  subdivision  or taxing  authority  thereof (all such
nonexcluded  taxes,  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
hereunder  or under any Note to the  Agent or any  Lender,  (i) the sum  payable
shall be  increased  as may be  necessary  so that  after  making  all  required
deductions  (including  deductions  applicable to additional  sums payable under
this Section 2.17),  the Agent or such Lender,  as the case may be,  receives an
amount equal to the sum it would have received had no such deductions been made,
(ii) the Borrower  will make such  deductions,  (iii) the Borrower  will pay the
full amount  deducted to the relevant  taxation  authority or other authority in
accordance  with  applicable law and (iv) the Borrower will deliver to the Agent
or such Lender, as the case may be, evidence of such payment.

                                       36
<PAGE>

      (b) The  Borrower  will  indemnify  the Agent and each Lender for the full
amount  of Taxes  (including,  without  limitation,  any  Taxes  imposed  by any
jurisdiction  on amounts  payable  under this Section 2.17) paid by the Agent or
such  Lender,  as the  case  may be,  and any  liability  (including  penalties,
interest and expenses) arising therefrom or with respect thereto, whether or not
such Taxes were correctly or legally  asserted.  This  indemnification  shall be
made within 30 days from the date the Agent or such Lender,  as the case may be,
makes written demand therefor.

      (c) Each of the  Agent  and the  Lenders  agrees  that if it  subsequently
recovers, or receives a permanent net tax benefit with respect to, any amount of
Taxes (i) previously paid by it and as to which it has been indemnified by or on
behalf of the Borrower or (ii) previously  deducted by the Borrower  (including,
without  limitation,  any Taxes deducted from any additional  sums payable under
clause (i) of subsection (a) above),  the Agent or such Lender,  as the case may
be,  shall  reimburse  the  Borrower  to the  extent  of the  amount of any such
recovery  or  permanent  net tax  benefit  (but only to the extent of  indemnity
payments made, or additional amounts paid, by or on behalf of the Borrower under
this Section 2.17 with respect to the Taxes giving rise to such  recovery or tax
benefit); provided, however, that the Borrower, upon the request of the Agent or
such Lender,  agrees to repay to the Agent or such  Lender,  as the case may be,
the amount paid over to the Borrower  (together with any penalties,  interest or
other charges),  in the event the Agent or such Lender is required to repay such
amount to the relevant taxing  authority or other  Governmental  Authority.  The
determination  by the Agent or any Lender of the amount of any such  recovery or
permanent net tax benefit shall, in the absence of manifest error, be conclusive
and binding.

      (d) If any Lender is a "foreign corporation,  partnership or trust" within
the meaning of the Internal  Revenue Code, and such Lender claims exemption from
United States withholding tax under Section 1441 or 1442 of the Internal Revenue
Code,  such Lender  will  deliver to each of the Agent and the  Borrower,  on or
prior to the date of any  payment  by the  Borrower  to such  Lender  under this
Agreement or the Notes, a properly  completed Internal Revenue Service Form 4224
or 1001, as  applicable  (or successor  forms),  certifying  that such Lender is
entitled to an exemption  from or a reduction of withholding or deduction for or
on account of United States  federal  income taxes in  connection  with payments
under this  Agreement or any of the Notes,  together  with a properly  completed
Internal  Revenue  Service Form W-8 or W-9, as applicable (or successor  forms).
Each such Lender further agrees to deliver to each of the Agent and the Borrower
an  additional  copy of each such  relevant form on or before the date that such
form expires  (currently,  three successive calendar years for Form 1001 and one
calendar year for Form 4224) or becomes  obsolete or after the occurrence of any
event  requiring a change in the most recent  forms so  delivered by it, in each
case certifying that such Lender is entitled to an exemption from or a reduction
of  withholding  or deduction for or on account of United States  federal income
taxes in  connection  with  payments  under this  Agreement or any of the Notes,
unless an event (including,  without  limitation,  any change in treaty,  law or
regulation)  has  occurred  prior to the date on which any such  delivery  would
otherwise be required,  which event renders all such forms  inapplicable  or the
exemption to which such forms relate  unavailable  and such Lender  notifies the
Agent and the  Borrower  that it is not  entitled  to receive  payments  without
deduction or withholding of United States federal income taxes. Each such Lender
will promptly notify the Agent and the Borrower of any changes in  circumstances
that would modify or render invalid any claimed exemption or reduction.

                                       37
<PAGE>

      (e) If any  Lender  is  entitled  to a  reduction  in (and not a  complete
exemption from) the applicable  withholding  tax, the Borrower and the Agent may
withhold  from any interest  payment to such Lender an amount  equivalent to the
applicable  withholding tax after taking into account such reduction.  If any of
the forms or other  documentation  required  under  subsection (d) above are not
delivered to the Agent as therein required,  then the Borrower and the Agent may
withhold from any interest  payment to such Lender not  providing  such forms or
other documentation an amount equivalent to the applicable withholding tax.

      2.18  Compensation.  The Borrower will  compensate each Lender upon demand
(which  demand  shall be  accompanied  by a written  explanation  in  reasonable
detail,  showing  the  basis  for such  demand)  for all  losses,  expenses  and
liabilities  (including,  without  limitation,  any loss,  expense or  liability
incurred by reason of the liquidation or reemployment of deposits or other funds
required by such Lender to fund or  maintain  LIBOR  Loans) that such Lender may
incur or sustain (i) if for any reason  (other than a default by such  Lender) a
borrowing or continuation of, or conversion into, a LIBOR Loan does not occur on
a date  specified  therefor  in a Notice  of  Revolving  Borrowing  or Notice of
Conversion/Continuation,  (ii) if any repayment, prepayment or conversion of any
LIBOR  Loan  occurs  on a date  other  than the last day of an  Interest  Period
applicable  thereto  (including as a consequence of acceleration of the maturity
of the Loans pursuant to Section 9.2), (iii) if any prepayment of any LIBOR Loan
is not  made on any  date  specified  in a  notice  of  prepayment  given by the
Borrower or (iv) as a  consequence  of any other failure by the Borrower to make
any payments with respect to any LIBOR Loan when due  hereunder.  Calculation of
all amounts  payable to a Lender under this Section 2.18 shall be made as though
such Lender had actually  funded its relevant LIBOR Loan through the purchase of
a Eurodollar  deposit  bearing  interest at the LIBOR Rate in an amount equal to
the amount of such LIBOR  Loan,  having a maturity  comparable  to the  relevant
Interest Period; provided, however, that each Lender may fund its LIBOR Loans in
any manner it sees fit and the foregoing  assumption  shall be utilized only for
the  calculation of amounts payable under this Section 2.18.  Determinations  by
any Lender for purposes of this  Section  2.18 of any such  losses,  expenses or
liabilities  shall,  absent manifest  error,  be conclusive,  provided that such
determinations are made in good faith.


                                   ARTICLE III

                                LETTERS OF CREDIT

     3.1  Issuance.  Subject  to and upon the terms and  conditions  herein  set
forth, so long as no Default or Event of Default has occurred and is continuing,
the  Issuing  Lender  will,  at any time and from  time to time on and after the
Closing  Date and  prior to the  earlier  of (i) the  seventh  day  prior to the
Maturity Date and (ii) the Termination Date, and upon request by the Borrower in
accordance  with the  provisions  of Section  3.2,  issue for the account of the
Borrower  one or more  irrevocable  standby  letters  of credit  denominated  in
Dollars  and in a form  customarily  used or  otherwise  approved by the Issuing
Lender  (together with all amendments,  modifications  and supplements  thereto,
substitutions therefor and renewals and restatements thereof,  collectively, the
"Letters of  Credit").  The Stated  Amount of each Letter of Credit shall not be
less  than  such  amount  as  may  be   acceptable   to  the   Issuing   Lender.
Notwithstanding the foregoing:

                                       38
<PAGE>

      (a) No Letter of Credit shall be issued the Stated  Amount of which,  upon
issuance,  (i) when  added to the  aggregate  Letter of Credit  Exposure  of the
Lenders at such time,  would exceed  $5,000,000 or (ii) when added to the sum of
(x) the aggregate Letter of Credit Exposure of all Lenders at such time, (y) the
aggregate  principal  amount of all Revolving Loans then outstanding and (z) the
aggregate principal amount of all Swingline Loans then outstanding, would exceed
the Aggregate Commitments at such time;

      (b) Unless the Issuing Lender  otherwise  agrees,  there shall not be more
than four (4) Letters of Credit issued and outstanding at any time;

      (c) No Letter of Credit  shall be issued that by its terms  expires  later
than the seventh day prior to the Maturity Date or, in any event,  more than one
(1) year after its date of issuance;  provided, however, that a Letter of Credit
may, if requested by the Borrower, provide by its terms, and on terms acceptable
to the Issuing  Lender,  for renewal for successive  periods of one year or less
(but not beyond the seventh day prior to the  Maturity  Date),  unless and until
the  Issuing  Lender  shall  have  delivered  a  notice  of  nonrenewal  to  the
beneficiary of such Letter of Credit; and

      (d) The Issuing Lender shall be under no obligation to issue any Letter of
Credit if, at the time of such  proposed  issuance,  (i) any order,  judgment or
decree of any Governmental Authority or arbitrator shall purport by its terms to
enjoin or restrain the Issuing Lender from issuing such Letter of Credit, or any
Requirement  of Law applicable to the Issuing Lender or any request or directive
(whether or not having the force of law) from any  Governmental  Authority  with
jurisdiction over the Issuing Lender shall prohibit, or request that the Issuing
Lender refrain from, the issuance of letters of credit  generally or such Letter
of Credit in particular or shall impose upon the Issuing  Lender with respect to
such Letter of Credit any  restriction  or reserve or capital  requirement  (for
which the  Issuing  Lender is not  otherwise  compensated)  not in effect on the
Closing Date, or any unreimbursed loss, cost or expense that was not applicable,
in effect or known to the  Issuing  Lender as of the  Closing  Date and that the
Issuing  Lender in good faith deems  material to it, or (ii) the Issuing  Lender
shall have  actual  knowledge,  or shall have  received  notice from any Lender,
prior  to the  issuance  of  such  Letter  of  Credit  that  one or  more of the
conditions  specified in Section 4.2 are not then satisfied or that the issuance
of such Letter of Credit would violate the provisions of subsection (a) above.

      3.2 Notices.  Whenever  the  Borrower  desires the issuance of a Letter of
Credit, the Borrower will give the Issuing Lender written notice (with a copy to
the Agent) not later than 12:00 noon,  Charlotte  time,  three (3) Business Days
(or such  shorter  period as is  acceptable  to the Issuing  Lender in any given
case) prior to the requested date of issuance thereof. Each such notice (each, a
"Letter of Credit Notice") shall be  irrevocable,  shall be given in the form of
Exhibit B-4 and shall specify (i) the requested date of issuance, which shall be
a Business  Day, (ii) the requested  Stated  Amount and  expiration  date of the
Letter of Credit, and (iii) the name and address of the requested beneficiary or
beneficiaries  of the Letter of Credit.  The  Borrower  will also  complete  any
application   procedures  and  documents  required  by  the  Issuing  Lender  in
connection  with the issuance of any Letter of Credit.  Upon its issuance of any
Letter of Credit,  the  Issuing  Lender will  promptly  notify the Agent of such
issuance, and the Agent will give prompt notice thereof to each Lender.

                                       39
<PAGE>

      3.3 Participations. Immediately upon the issuance of any Letter of Credit,
the Issuing Lender shall be deemed to have sold and  transferred to each Lender,
and  each  Lender  shall  be  deemed  irrevocably  and  unconditionally  to have
purchased and received from the Issuing Lender, without recourse or warranty, an
undivided interest and  participation,  pro rata (based on the percentage of the
Aggregate Commitments  represented by such Lender's Commitment),  in such Letter
of Credit,  each drawing made  thereunder  and the  obligations  of the Borrower
under this Agreement  with respect  thereto and any Collateral or other security
therefor  or  guaranty  pertaining  thereto;  provided,  however,  that  the fee
relating  to Letters of Credit  described  in  Section  2.8(e)  shall be payable
directly to the Issuing Lender as provided  therein,  and the Lenders shall have
no right to receive any portion  thereof.  Upon any change in the Commitments of
any of the Lenders  pursuant  to Section  11.7(a),  there shall be an  automatic
adjustment  to the  participations  with respect to all  outstanding  Letters of
Credit and Reimbursement Obligations pursuant to this Section to reflect the new
pro rata shares of the assigning Lender and the Assignee.

      3.4  Reimbursement.  The Borrower  hereby  agrees to reimburse the Issuing
Lender by making payment to the Agent, for the account of the Issuing Lender, in
immediately  available  funds,  for any payment made by the Issuing Lender under
any Letter of Credit (each such amount so paid until  reimbursed,  together with
interest thereon payable as provided hereinbelow, a "Reimbursement  Obligation")
immediately  after,  and in any  event  within  one (1)  Business  Day after its
receipt of notice of, such payment, together with interest on the amount so paid
by the  Issuing  Lender,  to the  extent  not  reimbursed  prior  to 1:00  p.m.,
Charlotte time, on the date of such payment or disbursement, for the period from
the date of the  respective  payment  to the date the  Reimbursement  Obligation
created  thereby is satisfied,  at the Adjusted Base Rate as in effect from time
to time during such  period,  such  interest  also to be payable on demand.  The
Issuing Lender will provide the Agent and the Borrower with prompt notice of any
payment or disbursement made under any Letter of Credit, although the failure to
give,  or any delay in giving,  any such notice shall not  release,  diminish or
otherwise  affect the  Borrower's  obligations  under this  Section or any other
provision of this  Agreement.  The Agent will promptly pay to the Issuing Lender
any such amounts received by it under this Section.

      3.5 Payment by Revolving Loans. In the event that the Issuing Lender makes
any payment  under any Letter of Credit and the  Borrower  shall not have timely
satisfied in full its Reimbursement Obligation to the Issuing Lender pursuant to
Section 3.4, and to the extent that any amounts then held in the Cash Collateral
Account  established  pursuant to Section 3.8 shall be  insufficient  to satisfy
such  Reimbursement  Obligation in full, the Issuing Lender will promptly notify
the Agent, and the Agent will promptly notify each Lender,  of such failure.  If
the Agent gives such notice prior to 11:00 a.m., Charlotte time, on any Business
Day,  each  Lender  will make  available  to the Agent,  for the  account of the
Issuing  Lender,  its pro rata share (based on the  percentage  of the Aggregate
Commitments  represented  by such  Lender's  Commitment)  of the  amount of such
Reimbursement Obligation on such Business Day in immediately available funds. If
the Agent gives such notice after 11:00 a.m.,  Charlotte  time,  on any Business
Day,  each Lender shall make its pro rata share of such amount  available to the
Agent on the next succeeding Business Day. If and to the extent any Lender shall
not  have so  made  its pro  rata  share  of the  amount  of such  Reimbursement
Obligation  available to the Agent,  such Lender agrees to pay to the Agent, for
the account of the Issuing  Lender,  forthwith on demand such  amount,  together
with  interest  thereon  at the  Federal  Funds Rate for each day from such date


                                       40
<PAGE>

until the date such  amount is paid to the Agent.  The  failure of any Lender to
make available to the Agent its pro rata share of any outstanding  Reimbursement
Obligation  shall not relieve any other  Lender of its  obligation  hereunder to
make available to the Agent its pro rata share of any outstanding  Reimbursement
Obligation  on the date  required,  as specified  above,  but no Lender shall be
responsible  for the failure of any other Lender to make  available to the Agent
such other Lender's pro rata share of any such  Reimbursement  Obligation.  Each
such  payment  by a Lender  under  this  Section  3.5 of its pro rata share of a
Reimbursement  Obligation  shall constitute a Revolving Loan by such Lender (the
Borrower  being  deemed to have  given a timely  Notice of  Revolving  Borrowing
therefor)  and shall be  treated  as such for all  purposes  of this  Agreement;
provided that for purposes of determining the Aggregate  Unutilized  Commitments
immediately  prior to giving effect to the  application  of the proceeds of such
Revolving Loans, the  Reimbursement  Obligation being satisfied thereby shall be
deemed not to be outstanding at such time.

      3.6 Payment to Lenders.  Whenever  the Issuing  Lender  receives a payment
from or on behalf of the Borrower in respect of a Reimbursement Obligation as to
which the  Agent has  received,  for the  account  of the  Issuing  Lender,  any
payments  from the Lenders  pursuant  to Section  3.5,  the Issuing  Lender will
promptly pay to the Agent,  and the Agent will  promptly pay to each Lender that
has paid its pro rata share thereof,  in immediately  available funds, an amount
equal to such Lender's ratable share (based on the  proportionate  amount funded
by  such  Lender  to the  aggregate  amount  funded  by  all  Lenders)  of  such
Reimbursement Obligation.

      3.7 Obligations Absolute.  The Reimbursement  Obligations of the Borrower,
and the  obligations  of the Lenders  under  Section 3.5 to make payments to the
Agent, for the account of the Issuing Lender, with respect to Letters of Credit,
shall be irrevocable, shall remain in effect until the Issuing Lender shall have
no  further  obligations  to  make  any  payments  or  disbursements  under  any
circumstances  with respect to any Letter of Credit,  and,  except to the extent
resulting  from any gross  negligence  or willful  misconduct on the part of the
Issuing  Lender,  shall be absolute and  unconditional,  shall not be subject to
counterclaim,  setoff or other defense or any other  qualification  or exception
whatsoever and shall be made in accordance with the terms and conditions of this
Agreement under all circumstances,  including,  without  limitation,  any of the
following circumstances:

      (a) Any lack of validity or enforceability  of this Agreement,  any of the
other Credit Documents or any documents or instruments relating to any Letter of
Credit;

      (b) Any change in the time, manner or place of payment of, or in any other
term of, all or any of the Obligations in respect of any Letter of Credit or any
other amendment,  modification or waiver of or any consent to departure from any
Letter of Credit or any documents or instruments  relating thereto, in each case
whether or not the Borrower has notice or knowledge thereof;

      (c) The  existence of any claim,  setoff,  defense or other right that the
Borrower may have at any time against a beneficiary named in a Letter of Credit,
any  transferee  of any  Letter  of  Credit  (or any  Person  for  whom any such
transferee may be acting),  the Agent,  the Issuing Lender,  any Lender or other
Person,  whether in connection  with this Agreement,  any Letter of Credit,  the


                                       41
<PAGE>

transactions  contemplated hereby or any unrelated  transactions  (including any
underlying  transaction  between the Borrower and the  beneficiary  named in any
such Letter of Credit);

      (d) Any  draft,  certificate  or any other  document  presented  under the
Letter of Credit proving to be forged,  fraudulent,  invalid or  insufficient in
any respect or any statement  therein being untrue or inaccurate in any respect,
any errors,  omissions,  interruptions  or delays in transmission or delivery of
any messages, by mail, telecopier or otherwise,  or any errors in translation or
in interpretation of technical terms;

      (e) Any defense  based upon the  failure of any drawing  under a Letter of
Credit to conform to the terms of the Letter of Credit,  any  nonapplication  or
misapplication  by the  beneficiary  or any  transferee  of the proceeds of such
drawing  or any other act or  omission  of such  beneficiary  or  transferee  in
connection with such Letter of Credit;

      (f) The exchange,  release,  surrender or impairment of any  Collateral or
other security for the Obligations;

      (g) The occurrence of any Default or Event of Default; or

      (h)  Any  other  circumstance  or  event  whatsoever,  including,  without
limitation,  any other  circumstance  that might otherwise  constitute a defense
available to, or a discharge of, the Borrower or a guarantor.

Any  action  taken or  omitted  to be taken by the  Issuing  Lender  under or in
connection  with any  Letter of Credit,  if taken or  omitted in the  absence of
gross negligence or willful  misconduct,  shall be binding upon the Borrower and
each  Lender  and shall not  create or result in any  liability  of the  Issuing
Lender to the  Borrower or any Lender.  It is  expressly  understood  and agreed
that, for purposes of determining  whether a wrongful  payment under a Letter of
Credit  resulted  from  the  Issuing   Lender's  gross   negligence  or  willful
misconduct,  (i) the Issuing  Lender's  acceptance  of documents  that appear on
their  face  to  comply  with  the  terms  of such  Letter  of  Credit,  without
responsibility   for  further   investigation,   regardless  of  any  notice  or
information to the contrary, (ii) the Issuing Lender's exclusive reliance on the
documents  presented to it under such Letter of Credit as to any and all matters
set forth therein, including the amount of any draft presented under such Letter
of Credit,  whether or not the amount due to the beneficiary  thereunder  equals
the amount of such draft and whether or not any document  presented  pursuant to
such Letter of Credit proves to be  insufficient in any respect (so long as such
document appears on its face to comply with the terms of such Letter of Credit),
and whether or not any other statement or any other document  presented pursuant
to such Letter of Credit proves to be forged or invalid or any statement therein
proves  to be  inaccurate  or untrue in any  respect  whatsoever,  and (iii) any
noncompliance  in any immaterial  respect of the documents  presented under such
Letter of Credit with the terms  thereof  shall,  in each case, be deemed not to
constitute gross negligence or willful misconduct of the Issuing Lender.

      3.8 Cash Collateral  Account.  At any time and from time to time (i) after
the occurrence and during the continuance of an Event of Default,  the Agent, at
the direction,  or with the consent,  of the Required  Lenders,  may require the
Borrower to deliver to the Agent such  additional  amount of cash as is equal to


                                       42
<PAGE>

the  aggregate  Stated  Amount of all Letters of Credit at any time  outstanding
(whether or not any  beneficiary  under any Letter of Credit shall have drawn or
be  entitled  at such  time to  draw  thereunder)  and  (ii) in the  event  of a
prepayment  under Section 2.6(c),  the Agent will retain such amount as may then
be required to be retained under the proviso in Section 2.6(c),  such amounts in
each case  under  clauses  (i) and (ii)  above to be held by the Agent in a cash
collateral  account  (the "Cash  Collateral  Account") as security for Letter of
Credit Exposure, and for application to the Borrower's Reimbursement Obligations
as and when the same shall arise.  The Agent shall have  exclusive  dominion and
control,  including the exclusive right of withdrawal,  over such account. Other
than any interest on the investment of such amounts in Cash  Equivalents,  which
investments  shall be made at the direction of the Borrower (unless a Default or
Event of  Default  shall  have  occurred  and be  continuing,  in which case the
determination  as to  investments  shall  be  made  at  the  option  and  in the
discretion of the Agent),  amounts in the Cash Collateral Account shall not bear
interest.  Interest and profits, if any, on such investments shall accumulate in
such  account.  In the  event  the  Agent  receives  notice  of a  drawing,  and
subsequent payment by the Issuing Lender, under any Letter of Credit at any time
during which any amounts are held in the Cash Collateral Account, the Agent will
deliver to the Issuing  Lender an amount equal to the  Reimbursement  Obligation
created as a result of such  payment  (or,  if the amounts so held are less than
such  Reimbursement  Obligation,  all of such  amounts) to reimburse the Issuing
Lender therefor.  Any amounts remaining in the Cash Collateral Account after the
expiration  of all  Letters of Credit and  reimbursement  in full of the Issuing
Lender for all of its obligations thereunder shall be held by the Agent, for the
benefit of the Borrower, to be applied against the Obligations in such order and
manner as the Agent may direct.  If the  Borrower  is  required to provide  cash
collateral pursuant to Section 2.6(c), such amount (to the extent not applied as
aforesaid)  shall be returned to the  Borrower  on demand,  provided  that after
giving effect to such return (i) the sum of (x) the aggregate  principal  amount
of all Revolving  Loans  outstanding at such time,  (y) the aggregate  principal
amount of all  Swingline  Loans  outstanding  at such time and (z) the aggregate
Letter of Credit  Exposure  of all  Lenders  at such time  would not  exceed the
Aggregate Commitments at such time and (ii) no Default or Event of Default shall
have  occurred and be  continuing  at such time.  If the Borrower is required to
provide cash collateral as a result of an Event of Default,  such amount (to the
extent not applied as aforesaid)  shall be returned to the Borrower within three
(3) Business Days after all Events of Default have been cured or waived.

      3.9 Effectiveness.  Notwithstanding  any termination of the Commitments or
repayment of the Loans,  or both,  the  obligations  of the Borrower  under this
Article III shall remain in full force and effect  until the Issuing  Lender and
the  Lenders  shall  have  no  further  obligations  to  make  any  payments  or
disbursements under any circumstances with respect to any Letter of Credit.


                                   ARTICLE IV

                             CONDITIONS OF BORROWING

      4.1 Conditions of Initial Borrowing. The obligation of each Lender to make
Loans in connection with the initial Borrowing hereunder,  and the obligation of
the  Issuing  Lender to issue  Letters  of Credit  hereunder,  is subject to the
satisfaction of the following conditions precedent:

                                       43
<PAGE>

      (a) The Agent  shall have  received  the  following,  each dated as of the
Closing  Date (unless  otherwise  specified)  and,  except for the Notes and the
certificates  and  instruments   required  to  be  delivered  under  the  Pledge
Agreement, in sufficient copies for each Lender:

          (i) a Revolving  Credit Note for each Lender that is a party hereto as
     of the  Closing  Date,  in the amount of such  Lender's  Commitment,  and a
     Swingline  Note for the  Swingline  Lender,  in the amount of the Swingline
     Commitment, each duly completed and executed by the Borrower;

          (ii)  the  Pledge  Agreement,  duly  completed  and  executed  by  the
     Borrower, together with all certificates evidencing the capital stock being
     pledged thereunder and undated stock powers for each such certificate, duly
     executed in blank, and any promissory notes being pledged thereunder,  duly
     endorsed in blank;

          (iii) the Guaranty, duly completed and executed by the Subsidiaries of
     the Borrower (other than Immaterial Subsidiaries);

          (iv) a  certificate,  signed by the chief  executive  officer or chief
     financial  officer of the Borrower,  in form and substance  satisfactory to
     the Agent,  certifying that (A) all  representations  and warranties of the
     Borrower  contained in this  Agreement  and the other Credit  Documents are
     true and correct as of the Closing Date, both immediately  before and after
     giving effect to the initial Loans  hereunder  and the  application  of the
     proceeds  thereof,  (B) no Default or Event of Default has  occurred and is
     continuing,  both immediately before and after giving effect to the initial
     Loans hereunder and the application of the proceeds  thereof,  and (C) both
     immediately  before  and after  giving  effect to the  consummation  of the
     transactions contemplated by this Agreement, no Material Adverse Change has
     occurred  since  January 4, 1998,  and there exists no event,  condition or
     state of facts that could  reasonably  be  expected to result in a Material
     Adverse Change;

          (v) a certificate  of the secretary or an assistant  secretary of each
     of the Borrower and its Subsidiaries (other than Immaterial  Subsidiaries),
     in form  and  substance  satisfactory  to the  Agent,  certifying  (A) that
     attached thereto is a true and complete copy of the articles or certificate
     of  incorporation  and  all  amendments  thereto  of the  Borrower  or such
     Subsidiary,  as the  case  may be,  certified  as of a  recent  date by the
     Secretary  of  State  (or   comparable   Governmental   Authority)  of  its
     jurisdiction of organization,  and that the same has not been amended since
     the date of such  certification,  (B) that  attached  thereto is a true and
     complete copy of the bylaws of the Borrower or such Subsidiary, as the case
     may be,  as then in effect  and as in effect at all times  from the date on
     which the  resolutions  referred to in clause (C) below were adopted to and
     including the date of such certificate,  and (C) that attached thereto is a
     true and complete copy of resolutions  adopted by the board of directors of
     the  Borrower  or such  Subsidiary,  as the  case may be,  authorizing  the
     execution,  delivery and performance of this Agreement and the other Credit
     Documents to which it is a party,  and as to the incumbency and genuineness
     of the  signature  of each  officer  of the  Borrower  or  such  Subsidiary
     executing  this  Agreement  or any  of  the  other  Credit  Documents,  and
     attaching all such copies of the documents described above; and

                                       44
<PAGE>

          (vi) the favorable  opinions of (i) S. Page Todd,  general  counsel to
     the  Borrower,  addressed to the Agent and the Lenders,  and (ii)  Maynard,
     Cooper & Gale,  P.C.,  special  counsel to the  Borrower,  addressed to the
     Agent and the Lenders,  in each case in form and substance  satisfactory to
     the Agent and the Lenders.

      (b) The Agent shall have received (i) a certificate as of a recent date of
the good  standing  of each of the  Borrower  and its  Subsidiaries  (other than
Immaterial  Subsidiaries)  under the laws of its  jurisdiction of  organization,
from the  Secretary  of State (or  comparable  Governmental  Authority)  of such
jurisdiction,  (ii) a certificate  as of a recent date of the  qualification  of
each of the Borrower and M.G.A.  to conduct  business as a foreign  corporation,
from the Secretary of State of Alabama,  and (iii) a certificate  as of a recent
date of the good standing of each of the Borrower and M.G.A. from the Department
of Revenue of the State of Alabama.

      (c) All legal matters,  documentation  and corporate or other  proceedings
incident to the transactions  contemplated hereby shall be reasonably acceptable
to  the  Agent;  all  approvals,   permits  and  consents  of  any  Governmental
Authorities  or other  Persons  required in  connection  with the  execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby shall have been obtained  (without the imposition of conditions  that are
not reasonably  acceptable to the Agent), and all related filings, if any, shall
have been made, and all such approvals,  permits,  consents and filings shall be
in full force and effect and the Agent shall have received  such copies  thereof
as it shall have  requested;  all applicable  waiting periods shall have expired
without any adverse  action  being taken by any  Governmental  Authority  having
jurisdiction;   and  no  action,   proceeding,   investigation,   regulation  or
legislation  shall have been instituted,  threatened or proposed before,  and no
order,  injunction  or decree  shall  have been  entered  by, any court or other
Governmental  Authority, in each case to enjoin, restrain or prohibit, to obtain
substantial damages in respect of, or that is otherwise related to or arises out
of, this Agreement or the consummation of the transactions  contemplated hereby,
or that in the opinion of the Agent would otherwise be reasonably likely to have
a Material Adverse Effect.

      (d) Since January 4, 1998, both immediately before and after giving effect
to the  consummation of the transactions  contemplated by this Agreement,  there
shall not have occurred any Material  Adverse Change or any event,  condition or
state of facts that could reasonably be expected to result in a Material Adverse
Change.

      (e) The Borrower  shall have paid (i) to First Union (or, at First Union's
request,  a designated  Affiliate of First Union), the unpaid balance of the fee
described  in  paragraph  (l) of the  Fee  Letter,  (ii) to the  Agent,  the fee
described in paragraph  (2) of the Fee Letter,  (iii) to the Agent,  the initial
payment of the annual  administrative  fee described in paragraph (3) of the Fee
Letter,  and (iv) all other  fees and  expenses  of the  Agent  and the  Lenders
required  hereunder or under any other Credit Document to be paid on or prior to
the Closing Date  (including  fees and expenses of counsel) in  connection  with
this Agreement and the transactions contemplated hereby.

                                       45
<PAGE>

      (f) The Agent  shall have  received  the  results of Lien  searches in the
names of the Borrower and its  Subsidiaries in  jurisdictions  designated by the
Agent,  and such results  shall  indicate to the  satisfaction  of the Agent the
absence of any Liens  upon the  assets or  properties  of the  Borrower  and its
Subsidiaries other than Permitted Liens.

      (g) The Agent shall have received a Covenant  Compliance  Worksheet,  duly
completed  and certified by the chief  financial  officer of the Borrower and in
form and  substance  satisfactory  to the Agent,  demonstrating  the  Borrower's
compliance  with the financial  covenants set forth in Sections 7.1 through 7.4,
determined on a pro forma basis as of October 4, 1998 after giving effect to the
making of the initial Loans hereunder and the  consummation of the  transactions
contemplated hereby.

      (h) The  Agent  shall  have  received  evidence  satisfactory  to it that,
concurrently with the making of the initial Loans hereunder,  (i) all principal,
interest and other amounts  outstanding  with respect to the Terminating  Senior
Indebtedness  shall be repaid and  satisfied in full,  (ii) all  commitments  to
extend credit under the agreements  and  instruments  relating  thereto shall be
terminated,  and (iii) any Liens securing any  Terminating  Senior  Indebtedness
shall be released and any related filings  terminated of record (or arrangements
satisfactory to the Agent made therefor).

      (i) The Agent shall have received an Account Designation Letter,  together
with written instructions from an Authorized Officer of the Borrower,  including
wire transfer information,  directing the payment of the proceeds of the initial
Loans to be made hereunder.

      (j) The Agent and each Lender shall have  received  such other  documents,
certificates, opinions and instruments as it shall have reasonably requested.

      4.2  Conditions of All  Borrowings.  The obligation of each Lender to make
any Loans hereunder,  including the initial Loans (but excluding Revolving Loans
made for the purpose of repaying  Refunded  Swingline  Loans pursuant to Section
2.2(d)), and the obligation of the Issuing Lender to issue any Letters of Credit
hereunder,  is subject to the satisfaction of the following conditions precedent
on the relevant Borrowing Date or date of issuance:

      (a) The Agent  shall have  received  a Notice of  Revolving  Borrowing  in
accordance with Section 2.2(b), or (together with the Swingline Lender) a Notice
of Swingline  Borrowing in accordance with Section 2.2(c), or (together with the
Issuing  Lender) a Letter of Credit  Notice in  accordance  with Section 3.2, as
applicable;  

     (b) Each of the representations  and warranties  contained in Article V and
in the  other  Credit  Documents  shall  be true and  correct  on and as of such
Borrowing  Date  (including  the Closing  Date, in the case of the initial Loans
made hereunder) or date of issuance with the same effect as if made on and as of
such date,  both  immediately  before and after giving effect to the Loans to be
made or Letter of Credit to be issued on such date  (except  to the  extent  any
such  representation  or warranty is expressly  stated to have been made as of a
specific date, in which case such  representation  or warranty shall be true and
correct as of such date); and

      (c) No Default or Event of Default  shall have  occurred and be continuing
on such date, both immediately before and after giving effect to the Loans to be
made or Letter of Credit to be issued on such date.

                                       46
<PAGE>

      Each giving of a Notice of Borrowing or a Letter of Credit Notice, and the
consummation  of each  Borrowing  or  issuance  of a Letter of Credit,  shall be
deemed to  constitute  a  representation  by the  Borrower  that the  statements
contained in subsections (b) and (c) above are true, both as of the date of such
notice or request and as of the relevant Borrowing Date or date of issuance.


                                    ARTICLE V

                         REPRESENTATIONS AND WARRANTIES

      To induce the Agent and the  Lenders to enter into this  Agreement  and to
induce  the  Lenders  to extend the credit  contemplated  hereby,  the  Borrower
represents and warrants to the Agent and the Lenders as follows:

      5.1  Corporate  Organization  and  Power.  Each  of the  Borrower  and its
Subsidiaries (i) is a corporation  duly organized,  validly existing and in good
standing under the laws of the jurisdiction of its  incorporation,  (ii) has the
full  corporate  power and authority to execute,  deliver and perform the Credit
Documents to which it is or will be a party, to own and hold its property and to
engage in its business as presently conducted, and (iii) is duly qualified to do
business as a foreign  corporation and is in good standing in each  jurisdiction
where the nature of its business or the ownership of its properties  requires it
to be so  qualified,  except  where the  failure to be so  qualified  would not,
individually  or in the  aggregate,  be  reasonably  likely  to have a  Material
Adverse Effect. Each of the Borrower and M.G.A. is duly qualified to do business
as a foreign corporation and is in good standing in the State of Alabama.

      5.2   Authorization;   Enforceability.   Each  of  the  Borrower  and  its
Subsidiaries  has taken,  or on the Closing Date will have taken,  all necessary
corporate action to execute, deliver and perform each of the Credit Documents to
which it is or will be a party,  and has, or on the  Closing  Date (or any later
date of execution and delivery) will have,  validly  executed and delivered each
of the  Credit  Documents  to  which it is or will be a  party.  This  Agreement
constitutes,  and each of the other Credit Documents upon execution and delivery
will constitute, the legal, valid and binding obligation of each of the Borrower
and its Subsidiaries that is a party hereto or thereto,  enforceable  against it
in  accordance  with its  terms,  except as  enforceability  may be  limited  by
bankruptcy,  insolvency,  reorganization,   moratorium  or  other  similar  laws
affecting creditors' rights generally or by general equitable principles.

      5.3 No Violation.  The execution,  delivery and performance by each of the
Borrower and its  Subsidiaries  of this  Agreement  and each of the other Credit
Documents to which it is or will be a party, and compliance by it with the terms
hereof  and  thereof,  do not and  will not (i)  violate  any  provision  of its
certificate of  incorporation  or bylaws or contravene any other  Requirement of
Law  applicable to it, (ii) conflict  with,  result in a breach of or constitute
(with notice,  lapse of time or both) a default  under any Material  Contract to
which it is a party,  by which it or any of its  properties is bound or to which
it is subject,  or (iii) result in or require the creation or  imposition of any
Lien upon any of its  properties  or  assets.  No  Subsidiary  is subject to any
restriction  or  encumbrance  on its ability to make dividend  payments or other
distributions  in respect of its capital stock, to make loans or advances to the
Borrower or any other Subsidiary, or to transfer any of its assets or properties


                                       47
<PAGE>

to  the  Borrower  or any  other  Subsidiary,  in  each  case  other  than  such
restrictions or encumbrances existing under or by reason of the Credit Documents
or applicable Requirements of Law.

      5.4  Governmental  Authorization;   Permits.  (a)  No  consent,  approval,
authorization or other action by, notice to, or registration or filing with, any
Governmental  Authority or other Person is or will be required as a condition to
or otherwise in connection  with the due execution,  delivery and performance by
each of the Borrower and its  Subsidiaries of this Agreement or any of the other
Credit Documents to which it is or will be a party or the legality,  validity or
enforceability hereof or thereof.

      (b) Each of the Borrower and its Subsidiaries has, and is in good standing
with   respect   to,  all   governmental   approvals,   licenses,   permits  and
authorizations  necessary to conduct its business as presently  conducted and to
own or lease and operate its properties,  except for those the failure to obtain
which would not be reasonably likely,  individually or in the aggregate, to have
a Material Adverse Effect.

      5.5 Litigation. There are no actions, investigations, suits or proceedings
pending or, to the knowledge of the Borrower,  threatened,  at law, in equity or
in arbitration,  before any court, other Governmental Authority or other Person,
(i) against or affecting the Borrower,  any of its  Subsidiaries or any of their
respective properties as to which there is a reasonable likelihood of an adverse
determination and that would, if adversely  determined,  be reasonably likely to
have a Material Adverse Effect, or (ii) with respect to this Agreement or any of
the other Credit Documents.

      5.6 Taxes.  Each of the Borrower and its Subsidiaries has timely filed all
federal,  state and local tax  returns  and  reports  required to be filed by it
(other  than such local tax  returns and reports the failure to file which would
not be reasonably likely,  individually or in the aggregate,  to have a Material
Adverse  Effect)  and has paid all taxes,  assessments,  fees and other  charges
levied upon it or upon its properties that are shown thereon as due and payable,
other  than  those  that  are  being  contested  in  good  faith  and by  proper
proceedings and for which adequate  reserves have been established in accordance
with Generally Accepted Accounting  Principles.  Such returns accurately reflect
in all  material  respects  all  liability  for  taxes of the  Borrower  and its
Subsidiaries  for the periods covered  thereby.  Except as described in Schedule
5.6,  there is no  ongoing  audit or  examination  or, to the  knowledge  of the
Borrower, other investigation by any Governmental Authority of the tax liability
of the Borrower or any of its Subsidiaries,  and there is no unresolved claim by
any Governmental  Authority  concerning the tax liability of the Borrower or any
of its  Subsidiaries  for any  period  for which tax  returns  have been or were
required to have been filed,  other than claims for which adequate reserves have
been established in accordance with Generally  Accepted  Accounting  Principles.
Neither the Borrower nor any of its  Subsidiaries  has waived or extended or has
been  requested  to waive or extend the statute of  limitations  relating to the
payment of any taxes.

      5.7 Subsidiaries.  Schedule 5.7 sets forth a list, as of the Closing Date,
of all of the Subsidiaries of the Borrower and, as to each such Subsidiary,  the
percentage  ownership (direct and indirect) of the Borrower in each class of its
capital  stock and each direct  owner  thereof  (and such list  indicates  which
Subsidiaries  are  Immaterial  Subsidiaries).  Except  for the shares of capital


                                       48
<PAGE>

stock expressly  indicated on Schedule 5.7, there are no shares of capital stock
or warrants, rights, options or other equity securities of any Subsidiary of the
Borrower  outstanding  or reserved for any purpose.  All  outstanding  shares of
capital stock of each  Subsidiary  of the Borrower are duly and validly  issued,
fully  paid and  nonassessable.  The  Borrower  is the sole  legal,  record  and
beneficial  owner of, and has good and valid title to, all such  capital  stock,
free and clear of all Liens other than the Liens created  pursuant to the Pledge
Agreement.

      5.8   Full   Disclosure.    All   factual   information    heretofore   or
contemporaneously  furnished  to the  Agent or any  Lender in  writing  by or on
behalf  of  the  Borrower  or  any of its  Subsidiaries  for  purposes  of or in
connection with this Agreement and the transactions  contemplated hereby is, and
all other  such  factual  information  hereafter  furnished  to the Agent or any
Lender in writing  by or on behalf of the  Borrower  or any of its  Subsidiaries
will be, true and accurate in all material respects on the date as of which such
information is dated or certified (or, if such  information  has been amended or
supplemented,  on the date as of which any such amendment or supplement is dated
or  certified)  and not made  incomplete  by omitting  to state a material  fact
necessary  to  make  the  statements   contained   therein,   in  light  of  the
circumstances under which such information was provided, not misleading.

      5.9 Margin  Regulations.  Neither the Borrower nor any of its Subsidiaries
is engaged principally,  or as one of its important activities,  in the business
of extending  credit for the purpose of purchasing or carrying  Margin Stock. No
proceeds of the Loans will be used, directly or indirectly, to purchase or carry
any Margin Stock (except for purchases by the Borrower of outstanding  shares of
its  capital  stock  permitted  by Section 8.6 and made in  compliance  with the
applicable  provisions  of  Regulations  T, U and X), to extend  credit for such
purpose or for any other  purpose  that would  violate or be  inconsistent  with
Regulations T, U or X or any provision of the Exchange Act.

      5.10 No Material Adverse Change. There has been no Material Adverse Change
since  January 4, 1998,  and there exists no event,  condition or state of facts
that could reasonably be expected to result in a Material Adverse Change.

      5.11 Financial Matters.  (a) The Borrower has heretofore  furnished to the
Agent copies of (i) the audited  consolidated balance sheets of the Borrower and
its  Subsidiaries as of January 4, 1998,  January 5, 1997 and December 31, 1995,
and the related  statements  of income and cash flows for the fiscal years ended
January 4, 1998,  January  5, 1997 and  December  31,  1995,  together  with the
opinion of Ernst & Young thereon,  and (ii) the unaudited  consolidated  balance
sheet of the  Borrower  and its  Subsidiaries  as of October  4,  1998,  and the
related  statements of income and cash flows for the  three-month and nine-month
periods then ended,  respectively.  Such financial statements have been prepared
in accordance  with Generally  Accepted  Accounting  Principles  (subject,  with
respect to the unaudited financial statements,  to the absence of notes required
by  Generally  Accepted  Accounting  Principles  and to  normal  year-end  audit
adjustments) and present fairly the financial  condition of the Borrower and its
Subsidiaries on a consolidated  basis as of the respective dates thereof and the
consolidated  results of operations of the Borrower and its Subsidiaries for the
respective  periods  then ended.  Except as fully  reflected  in the most recent
financial  statements  referred  to above  and the notes  thereto,  there are no
material  liabilities or obligations  with respect to the Borrower or any of its
Subsidiaries of any nature whatsoever (whether absolute, contingent or otherwise
and whether or not due).

                                       49
<PAGE>

      (b) Each of the Borrower and its Subsidiaries,  after giving effect to the
consummation  of the  transactions  contemplated  hereby,  (i) will have capital
sufficient  to  carry on its  businesses  as  conducted  and as  proposed  to be
conducted,  (ii) will have assets with a fair  saleable  value,  determined on a
going concern basis,  (y) not less than the amount  required to pay the probable
liability  on its  existing  debts as they become  absolute  and matured and (z)
greater  than  the  total  amount  of  its  liabilities   (including  identified
contingent liabilities,  valued at the amount that can reasonably be expected to
become absolute and matured), and (iii) will not intend to, and will not believe
that it will,  incur debts or  liabilities  beyond its ability to pay such debts
and liabilities as they mature.

      5.12  Ownership of Properties.  Each of the Borrower and its  Subsidiaries
(i) has good and  marketable  title to all real property owned by it, (ii) holds
interests  as lessee under valid leases in full force and effect with respect to
all  material  leased real and personal  property  used in  connection  with its
business,  (iii) possesses or has rights to use licenses,  patents,  copyrights,
trademarks,  service marks, trade names and other assets sufficient to enable it
to continue to conduct its business  substantially  as heretofore  conducted and
without any material conflict with the rights of others, and (iv) has good title
to all of its other properties and assets reflected in the most recent financial
statements  referred to in Section 5.11(a) (except as sold or otherwise disposed
of since the date  thereof in the  ordinary  course of  business),  in each case
under (i),  (ii),  (iii) and (iv)  above free and clear of all Liens  other than
Permitted Liens.

      5.13 ERISA.  Each Plan is and has been  administered  in compliance in all
material respects with all applicable  Requirements of Law,  including,  without
limitation, the applicable provisions of ERISA and the Internal Revenue Code. No
ERISA Event has occurred and is continuing or, to the knowledge of the Borrower,
is  reasonably  expected to occur with respect to any Plan,  in either case that
would be reasonably likely, individually or in the aggregate, to have a Material
Adverse  Effect.  No Plan has any Unfunded  Pension  Liability,  and neither the
Borrower  nor any ERISA  Affiliate  has engaged in a  transaction  that could be
subject to Section 4069 or 4212(c) of ERISA,  in either  instance where the same
would be reasonably likely, individually or in the aggregate, to have a Material
Adverse  Effect.  Neither the  Borrower  nor any ERISA  Affiliate is required to
contribute to or has, or has at any time had, any  liability to a  Multiemployer
Plan.

      5.14 Environmental  Matters.  (a) Except as described in Schedule 5.14, no
Hazardous  Substances  are or have  been  generated,  used,  located,  released,
treated, disposed of or stored by the Borrower or any of its Subsidiaries or, to
the knowledge of the Borrower, by any other Person or otherwise, in, on or under
any portion of any real property, leased or owned, of the Borrower or any of its
Subsidiaries,  except in material  compliance with all applicable  Environmental
Laws,  and no  portion of any such real  property  or, to the  knowledge  of the
Borrower,  any other real property at any time leased,  owned or operated by the
Borrower or any of its  Subsidiaries,  has been  contaminated  by any  Hazardous
Substance; and no portion of any real property, leased or owned, of the Borrower
or any of its  Subsidiaries  has been or, to the knowledge of the  Borrower,  is
presently the subject of an environmental audit, assessment or remedial action.

                                       50
<PAGE>

      (b) To the  knowledge  of the  Borrower,  except as  described in Schedule
5.14, (i) no portion of any real property,  leased or owned,  of the Borrower or
any of its  Subsidiaries  has been used as or for a mine, a landfill,  a dump or
other  disposal  facility,  a  gasoline  service  station,  or  (other  than for
petroleum  substances  stored in the  ordinary  course of  business) a petroleum
products  storage  facility,  (ii) no portion of such real property or any other
real  property at any time  leased,  owned or operated by the Borrower or any of
its  Subsidiaries  has,  pursuant to any  Environmental  Law, been placed on the
"National  Priorities List" or "CERCLIS List" (or any similar federal,  state or
local list) of sites subject to possible environmental problems, and (iii) there
are not and have never been any  underground  storage tanks situated on any real
property, leased or owned, of the Borrower or any of its Subsidiaries.

      (c) All activities and operations of the Borrower and its Subsidiaries are
in compliance with the requirements of all applicable Environmental Laws, except
to the extent the failure so to comply,  individually or in the aggregate, would
not be reasonably likely to have a Material Adverse Effect. Neither the Borrower
nor any of its  Subsidiaries is involved in any suit,  action or proceeding,  or
has received any notice,  complaint or other  request for  information  from any
Governmental  Authority or other  Person,  with respect to any actual or alleged
Environmental Claims that, if adversely determined,  would be reasonably likely,
individually or in the aggregate, to have a Material Adverse Effect; and, to the
knowledge of the Borrower,  there are no threatened actions, suits,  proceedings
or investigations  with respect to any such Environmental  Claims, nor any basis
therefor.

      5.15 Compliance With Laws. Each of the Borrower and its  Subsidiaries  has
timely filed all material reports,  documents and other materials required to be
filed by it  under  all  applicable  Requirements  of Law with any  Governmental
Authority,  has  retained  all  material  records and  documents  required to be
retained by it under all  applicable  Requirements  of Law,  and is otherwise in
compliance with all applicable  Requirements of Law in respect of the conduct of
its business and the ownership and operation of its properties,  except for such
Requirements  of Law the failure to comply with  which,  individually  or in the
aggregate, would not be reasonably likely to have a Material Adverse Effect.

      5.16   Regulated   Industries.   Neither  the  Borrower  nor  any  of  its
Subsidiaries  is (i) an  "investment  company,"  a  company  "controlled"  by an
"investment  company,"  or an  "investment  advisor,"  within the meaning of the
Investment  Company  Act of 1940,  as  amended,  or (ii) a "holding  company," a
"subsidiary  company" of a "holding  company," or an  "affiliate"  of a "holding
company" or of a "subsidiary company" of a "holding company," within the meaning
of the Public Utility Holding Company Act of 1935, as amended.

      5.17  Insurance.  Schedule 5.17 sets forth a true and complete  summary of
all insurance policies or arrangements carried or maintained by the Borrower and
its  Subsidiaries.  The assets,  properties and business of the Borrower and its
Subsidiaries  are  insured  against  such  hazards and  liabilities,  under such
coverages  and  in  such  amounts,  as are  customarily  maintained  by  prudent
companies similarly situated and under policies issued by insurers of recognized
responsibility.

      5.18 Material Contracts. Each Material Contract existing as of the Closing
Date is (and each Material  Contract  entered into after the Closing Date,  upon
execution  and  delivery,  will be) in full force and  effect,  and  neither the
Borrower nor any of its Subsidiaries  or, to the knowledge of the Borrower,  any
other party thereto, is in material default under any such Material Contract.

                                       51
<PAGE>

      5.19 Security Documents.  The provisions of each of the Security Documents
(whether  executed and delivered  prior to or on the Closing Date or thereafter)
are and will be  effective  to create in favor of the Agent,  for the benefit of
the Lenders,  upon the initial  extension of credit hereunder and the possession
by the Agent of certificates  evidencing the securities pledged thereby, a valid
and enforceable first priority  perfected security interest in and Lien upon all
right,  title and interest of the Borrower and its Subsidiaries,  as applicable,
in the Collateral described therein, subject only to Permitted Liens.


                                   ARTICLE VI

                              AFFIRMATIVE COVENANTS

      The Borrower  covenants  and agrees  that,  until the  termination  of the
Commitments  and the  Swingline  Commitment  and all  Letters  of Credit and the
payment in full of all  principal and interest with respect to the Loans and all
Reimbursement  Obligations  together  with all other  amounts then due and owing
hereunder:

      6.1 Financial Statements. The Borrower will deliver to each Lender:

      (a) As soon as  available  and in any event  within  forty-five  (45) days
after the end of each of the first three  fiscal  quarters of each fiscal  year,
beginning   with  the  fiscal   quarter  ending  April  4,  1999,  an  unaudited
consolidated balance sheet of the Borrower and its Subsidiaries as of the end of
such fiscal  quarter,  an  unaudited  consolidated  statement  of income for the
Borrower and its  Subsidiaries  for the fiscal  quarter then ended and unaudited
consolidated  statements  of cash flows for that portion of the fiscal year then
ended, in each case setting forth comparative consolidated figures as of the end
of and for the  corresponding  period in the preceding fiscal year, all prepared
in accordance  with Generally  Accepted  Accounting  Principles  (subject to the
absence of notes  required  by  Generally  Accepted  Accounting  Principles  and
subject to normal year-end audit adjustments) applied on a basis consistent with
that of the  preceding  quarter or  containing  disclosure  of the effect on the
financial condition or results of operations of any change in the application of
accounting principles and practices during such quarter; and

      (b) As soon as available  and in any event  within  ninety (90) days after
the end of each fiscal year,  beginning  with the fiscal year ending  January 3,
1999,  (i) an  audited  consolidated  balance  sheet  of the  Borrower  and  its
Subsidiaries  as of  the  end of  such  fiscal  year  and  audited  consolidated
statements  of income and cash flows for the Borrower and its  Subsidiaries  for
the fiscal year then ended, including the applicable notes, in each case setting
forth  comparative  figures as of the end of and for the preceding  fiscal year,
certified by the independent certified public accounting firm regularly retained
by the  Borrower or another  independent  certified  public  accounting  firm of
recognized  national  standing  reasonably  acceptable to the Required  Lenders,
together with (y) a report thereon by such  accountants that is not qualified as
to going  concern  or  scope of audit  and to the  effect  that  such  financial
statements  present fairly the consolidated  financial  condition and results of
operations  of the  Borrower  and its  Subsidiaries  as of the dates and for the
periods indicated in accordance with generally  accepted  accounting  principles
applied on a basis  consistent  with that of the  preceding  year or  containing
disclosure of the effect on the  financial  position or results of operations of
any change in the application of accounting principles and practices during such


                                       52
<PAGE>

year, and (z) a report by such  accountants to the effect that,  based on and in
connection  with their  examination of the financial  statements of the Borrower
and its Subsidiaries,  they obtained no knowledge of the occurrence or existence
of any Default or Event of Default relating to accounting or financial reporting
matters,  or a statement  specifying  the nature and period of  existence of any
such Default or Event of Default  disclosed by their audit;  provided,  however,
that such  accountants  shall not be liable by reason of the  failure  to obtain
knowledge  of any  Default or Event of Default  that would not be  disclosed  or
revealed  in the  course  of their  audit  examination,  and  (ii) an  unaudited
consolidating  balance sheet of the Borrower and its  Subsidiaries as of the end
of such fiscal year and  unaudited  consolidating  statements of income and cash
flows for the Borrower and its  Subsidiaries for the fiscal year then ended, all
in reasonable detail.

      6.2 Other Business and Financial Information. The Borrower will deliver to
each Lender:

      (a) Concurrently with each delivery of the financial  statements described
in Section 6.1, a Compliance  Certificate  in the form of Exhibit D with respect
to the period covered by the financial statements then being delivered, executed
by the  chief  financial  officer  of the  Borrower,  together  with a  Covenant
Compliance Worksheet reflecting the computation of the Acquisition covenants set
forth in clauses (ii) and (iii) of Section  6.9(a) and the  financial  covenants
set forth in Sections  7.1 through 7.4 as of the last day of the period  covered
by such financial statements;

      (b) As soon as available and in any event within thirty (30) days prior to
the end of each fiscal year,  beginning  with the fiscal year ending  January 3,
1999, a consolidated  operating budget for the Borrower and its Subsidiaries for
the  succeeding  fiscal year  (prepared on a quarterly  basis),  consisting of a
consolidated balance sheet and consolidated statements of income and cash flows,
together with a certificate  of the chief  financial  officer of the Borrower to
the effect that such budgets have been prepared in good faith and are reasonable
estimates of the  financial  position and results of  operations of the Borrower
and its Subsidiaries for the period covered thereby;

      (c)  Promptly  upon receipt  thereof,  copies of any  "management  letter"
submitted to the Borrower or any of its  Subsidiaries  by its  certified  public
accountants  in  connection  with each  annual,  interim or special  audit,  and
promptly upon completion thereof,  any response reports from the Borrower or any
such Subsidiary in respect thereof;

      (d) Promptly upon the sending,  filing or receipt  thereof,  copies of (i)
all  financial  statements,  reports,  notices  and  proxy  statements  that the
Borrower or any of its  Subsidiaries  shall send or make available  generally to
its  shareholders,   and  (ii)  all  regular,   periodic  and  special  reports,
registration  statements  and  prospectuses  (other  than on Form  S-8) that the
Borrower or any of its Subsidiaries  shall render to or file with the Securities
and Exchange Commission, the National Association of Securities Dealers, Inc. or
any national securities exchange;

                                       53
<PAGE>

      (e) Promptly  upon (and in any event within ten (10)  Business Days after)
any Responsible  Officer of the Borrower obtaining  knowledge  thereof,  written
notice of any of the following:

          (i) the occurrence of any Default or Event of Default, together with a
     written statement of the chief executive officer or chief financial officer
     of the Borrower  specifying the nature of such Default or Event of Default,
     the period of existence  thereof and the action that the Borrower has taken
     and proposes to take with respect thereto;

          (ii) the  institution or threatened  institution of any action,  suit,
     investigation or proceeding against or affecting the Borrower or any of its
     Subsidiaries,  including  any  such  investigation  or  proceeding  by  any
     Governmental    Authority   (other   than   routine   periodic   inquiries,
     investigations or reviews), as to which there is a reasonable likelihood of
     an adverse  determination  and that  would,  if  adversely  determined,  be
     reasonably  likely,  individually  or in the aggregate,  to have a Material
     Adverse  Effect,  and any material  development  in any litigation or other
     proceeding  previously  reported  pursuant to Section  5.5 or this  Section
     6.3(e)(ii);

          (iii) the receipt by the Borrower or any of its Subsidiaries  from any
     Governmental  Authority  of (i) any  notice  asserting  any  failure by the
     Borrower or any of its  Subsidiaries  to be in compliance  with  applicable
     Requirements  of Law or that threatens the taking of any action against the
     Borrower or such Subsidiary or sets forth  circumstances  that, if taken or
     adversely determined, would be reasonably likely to have a Material Adverse
     Effect,  or  (ii)  any  notice  of any  actual  or  threatened  suspension,
     limitation  or  revocation  of,  failure  to renew,  or  imposition  of any
     restraining  order,  escrow or impoundment of funds in connection with, any
     license,  permit,  accreditation or authorization of the Borrower or any of
     its  Subsidiaries,  where such action would be reasonably  likely to have a
     Material Adverse Effect;

          (iv) the  occurrence  of any ERISA Event,  together with (i) a written
     statement of the chief executive  officer or chief financial officer of the
     Borrower specifying the details of such ERISA Event and the action that the
     Borrower has taken and proposes to take with respect  thereto,  (ii) a copy
     of any notice  with  respect to such ERISA Event that may be required to be
     filed with the PBGC and (iii) a copy of any notice delivered by the PBGC to
     the Borrower or such ERISA Affiliate with respect to such ERISA Event;

          (v) the occurrence of any material  default under,  or any proposed or
     threatened  termination or cancellation of, any Material  Contract to which
     the Borrower or any of its  Subsidiaries  is a party,  the  termination  or
     cancellation of which would be reasonably likely to have a Material Adverse
     Effect;

          (vi) the occurrence of any of the following:  (i) the assertion of any
     Environmental  Claim  against  or  affecting  the  Borrower,   any  of  its
     Subsidiaries  or any of their  respective  real property,  leased or owned;
     (ii) the receipt by the  Borrower or any of its  Subsidiaries  of notice of
     any alleged violation of or noncompliance  with any Environmental  Laws; or
     (iii)  the  taking  of any  remedial  action  by the  Borrower,  any of its
     Subsidiaries  or any other  Person in  response  to the  actual or  alleged


                                       54
<PAGE>

     generation,  storage,  release,  disposal  or  discharge  of any  Hazardous
     Substances  on, to, upon or from any real  property  leased or owned by the
     Borrower or any of its  Subsidiaries;  but in each case under  clauses (i),
     (ii) and (iii)  above,  only to the  extent  the same  would be  reasonably
     likely to have a Material Adverse Effect; and

          (vii) any  other  matter or event  that  has,  or would be  reasonably
     likely  to  have,  a  Material  Adverse  Effect,  together  with a  written
     statement of the chief executive  officer or chief financial officer of the
     Borrower  setting forth the nature and period of existence  thereof and the
     actions  that the  Borrower  has taken and  proposes  to take with  respect
     thereto; and

      (f) As promptly as reasonably  possible,  such other information about the
business,  condition  (financial or otherwise),  operations or properties of the
Borrower  or any of its  Subsidiaries  (including  any Plan and any  information
required to be filed under ERISA, and including any statements,  audits or other
reports  submitted by or on behalf of the Borrower or any of its Subsidiaries to
any state  Governmental  Authority)  as the Agent or any Lender may from time to
time reasonably request.

      6.3  Corporate  Existence;  Franchises;  Maintenance  of  Properties.  The
Borrower will, and will cause each of its  Subsidiaries  (other than  Immaterial
Subsidiaries)  to,  (i)  maintain  and  preserve  in full  force and  effect its
corporate  existence,  except as expressly  permitted  otherwise by Section 8.1,
(ii) obtain,  maintain  and preserve in full force and effect all other  rights,
franchises,  licenses,  permits,  certifications,  approvals and  authorizations
required by Governmental Authorities and necessary to the ownership,  occupation
or use of its  properties or the conduct of its  business,  except to the extent
the failure to do so would not be reasonably  likely to have a Material  Adverse
Effect,  and  (iii)  keep all  material  properties  in good  working  order and
condition  (normal  wear  and tear  excepted)  and  from  time to time  make all
necessary repairs to and renewals and replacements of such properties, except to
the extent that any of such properties are obsolete or are being replaced.

      6.4  Compliance  with Laws.  The Borrower will, and will cause each of its
Subsidiaries  to, comply in all respects with all Requirements of Law applicable
in respect of the conduct of its business and the ownership and operation of its
properties,  except  to  the  extent  the  failure  so to  comply  would  not be
reasonably likely to have a Material Adverse Effect.

      6.5 Payment of Obligations.  The Borrower will, and will cause each of its
Subsidiaries  to,  (i) pay all  liabilities  and  obligations  as and  when  due
(subject  to any  applicable  subordination  provisions),  except to the  extent
failure  to do so would  not be  reasonably  likely to have a  Material  Adverse
Effect,  and (ii) pay and  discharge  all taxes,  assessments  and  governmental
charges or levies imposed upon it, upon its income or profits or upon any of its
properties,  prior to the date on which penalties would attach thereto,  and all
lawful claims that, if unpaid, might become a Lien upon any of the properties of
the Borrower or any of its  Subsidiaries;  provided,  however,  that neither the
Borrower  nor any of its  Subsidiaries  shall be  required  to pay any such tax,
assessment,  charge,  levy or claim that is being contested in good faith and by
proper  proceedings  and  as  to  which  the  Borrower  or  such  Subsidiary  is
maintaining  adequate reserves with respect thereto in accordance with Generally
Accepted Accounting Principles.

                                       55
<PAGE>

      6.6 Insurance.  The Borrower will, and will cause each of its Subsidiaries
to, maintain with financially sound and reputable  insurance companies insurance
with respect to its assets,  properties  and business,  against such hazards and
liabilities,  of such types and in such amounts, as is customarily maintained by
companies in the same or similar businesses similarly situated.

      6.7 Maintenance of Books and Records;  Inspection.  The Borrower will, and
will cause each of its  Subsidiaries to, (i) maintain  adequate books,  accounts
and  records,  in which  full,  true and  correct  entries  shall be made of all
financial  transactions in relation to its business and properties,  and prepare
all  financial  statements  required  under  this  Agreement,  in  each  case in
accordance with Generally Accepted Accounting  Principles and in compliance with
the requirements of any Governmental  Authority having jurisdiction over it, and
(ii)  permit  employees  or  agents of the Agent or any  Lender to  inspect  its
properties and examine or audit its books, records,  working papers and accounts
and make copies and memoranda of them, and to discuss its affairs,  finances and
accounts with its officers and employees  and, upon notice to the Borrower,  the
independent public accountants of the Borrower and its Subsidiaries (and by this
provision the Borrower  authorizes such  accountants to discuss the finances and
affairs of the Borrower and its  Subsidiaries),  all at such times and from time
to time, upon reasonable  notice and during business hours, as may be reasonably
requested.

      6.8 Interest Rate  Protection.  At March 31, 1999, the Borrower shall have
entered into or  obtained,  and the Borrower  will  thereafter  maintain in full
force and effect, Hedge Agreements in form and substance reasonably satisfactory
to the Agent the effect of which shall be to fix or limit interest rates payable
by the  Borrower as to at least fifty  percent  (50%) of all  principal  amounts
outstanding  at  such  date  under  all  Funded  Debt  of the  Borrower  and its
Subsidiaries  for a period of not less than two (2) years  after such date.  The
Borrower  will deliver to the Agent,  promptly upon receipt  thereof,  copies of
such Hedge Agreements (and any supplements or amendments thereto),  and promptly
upon request therefor,  any other information  reasonably requested by the Agent
to evidence its compliance with the provisions of this Section.

      6.9 Permitted  Acquisitions.  (a) Subject to the  provisions of subsection
(c)  below  and  the  requirements   contained  in  the  definition  of  Allowed
Acquisition,  and subject to the other terms and  conditions of this  Agreement,
the Borrower  may from time to time on or after the Closing Date effect  Allowed
Acquisitions, provided that, with respect to each Allowed Acquisition:

          (i) no  Default  or  Event  of  Default  shall  have  occurred  and be
     continuing at the time of the  consummation of such Allowed  Acquisition or
     would exist immediately after giving effect thereto;

          (ii) To the  extent  payable  in cash,  the  Acquisition  Amount  with
     respect thereto, together with the aggregate of the Acquisition Amounts (to
     the  extent  paid or payable  in cash) for all other  Allowed  Acquisitions
     consummated during the same Reference Period, shall not exceed $15,000,000;
     and

          (iii) the Acquisition  Amount with respect thereto  (regardless of the
     form of  consideration),  together  with the  aggregate of the  Acquisition


                                       56
<PAGE>

     Amounts  (regardless  of the form of  consideration)  for all other Allowed
     Acquisitions consummated during the same Reference Period, shall not exceed
     $35,000,000.

      (b)  Subject  to the  terms  and  conditions  of  this  Agreement  and any
additional  terms  and  conditions  that may be  specified  by the  Agent or the
Required  Lenders,  the  Borrower  may from time to time after the Closing  Date
effect Acquisitions that are not Allowed Acquisitions, but in each instance only
with the prior written consent of the Required Lenders (i.e.,  such acquisitions
must be Permitted Acquisitions).

      (c) Not less than five (5)  Business  Days after the  consummation  of any
Permitted  Acquisition  with  respect to which the  Acquisition  Amount  exceeds
$5,000,000,  the  Borrower  shall have  delivered to the Agent and each Lender a
summary   description  of  the  material  terms  of  such  Allowed   Acquisition
(including,  without limitation,  the purchase price and method and structure of
payment)  and of each  Person or business  that is the  subject of such  Allowed
Acquisition  (each,  a "Target"),  together with summary  financial  information
(including  statements  of revenues  and cash  flows) with  respect to each such
acquired Person or business.

      (d) Not less than five (5)  Business  Days after the  consummation  of any
Permitted  Acquisition  with  respect to which the  Acquisition  Amount  exceeds
$5,000,000,  the  Borrower  shall have  delivered to the Agent and each Lender a
certificate,  in  form  and  substance  reasonably  satisfactory  to the  Agent,
executed by the chief financial officer of the Borrower,  to the effect that, to
the best of such  individual's  knowledge,  the  consummation  of such Permitted
Acquisition will not result in a violation of any provision of this Section, and
after giving effect to such Permitted  Acquisition  and any  Borrowings  made in
connection  therewith,  the Borrower  will be in  compliance  with the financial
covenants contained in Sections 7.1 through 7.4, such compliance determined with
regard to  calculations  made on a pro forma basis in accordance  with Generally
Accepted Accounting  Principles as if each Target had been consolidated with the
Borrower for those periods applicable to such covenants (such calculations to be
attached to the certificate).

      (e) The consummation of each Permitted Acquisition shall be deemed to be a
representation  and  warranty by the  Borrower  that  (except as shall have been
approved in writing by the Required Lenders) all conditions thereto set forth in
this Section 6.9 and in the  description  furnished  under  subsection (c) above
have been satisfied,  that the same is permitted in accordance with the terms of
this Agreement, and that the matters certified to by the chief financial officer
of the Borrower in the  certificate  referred to in subsection (d) above are, to
the best of such  individual's  knowledge,  true  and  correct  in all  material
respects as of the date such  certificate  is given,  which  representation  and
warranty  shall be deemed to be a  representation  and  warranty  as of the date
thereof for all purposes hereunder,  including, without limitation, for purposes
of Sections 4.2 and 9.1.

      (f) The  Borrower  will  furnish to the Agent and the  Lenders  such other
information  regarding  any  Allowed  Acquisition  and the  assets,  business or
Persons that are the subject thereof as the Agent or any Lender may from time to
time  reasonably  request  (it  being  understood  that the  provisions  of this
subsection  (e)  shall not be deemed to limit or  restrict  the  ability  of the
Borrower to consummate Allowed  Acquisitions  subject to the other provisions of
this  Section  6.9  and  subject  to the  other  terms  and  conditions  of this
Agreement).

                                       57
<PAGE>

      6.10 Creation or Acquisition of Subsidiaries. Subject to the provisions of
Section  8.5,  the  Borrower  may from time to time create or acquire new Wholly
Owned Subsidiaries in connection with Permitted  Acquisitions or otherwise,  and
the Wholly Owned  Subsidiaries  of the Borrower may create or acquire new Wholly
Owned Subsidiaries, provided that neither the aggregate fair market value at any
time of the assets of all Subsidiaries that are Immaterial  Subsidiaries at such
time, nor the aggregate  gross revenues  (determined for the most recently ended
period  of  twelve  consecutive  fiscal  months)  of all  Subsidiaries  that are
Immaterial  Subsidiaries  at such time,  shall exceed  $1,000,000,  and provided
further that:

      (a) Promptly (and in any event within  fifteen (15)  Business  Days) after
the creation or direct or indirect  acquisition  by the Borrower of a new Wholly
Owned Subsidiary,  if such new Subsidiary is a Material  Subsidiary (or, if such
new Subsidiary is an Immaterial Subsidiary when so created or acquired, promptly
(and in any event within  fifteen (15) Business  Days) after such new Subsidiary
ceases to be an Immaterial  Subsidiary),  such new  Subsidiary  will execute and
deliver to the Agent a supplement or joinder to the Guaranty,  pursuant to which
such new Subsidiary shall become a guarantor thereunder;

      (b) Promptly (and in any event within  fifteen (15)  Business  Days) after
the creation or acquisition  of a new Wholly Owned  Subsidiary the capital stock
or other  ownership  interests of which are directly  owned by the Borrower,  if
such new Subsidiary is a Material  Subsidiary  (or, if such new Subsidiary is an
Immaterial  Subsidiary  when so created or acquired,  promptly (and in any event
within  fifteen (15) Business  Days) after such new  Subsidiary  ceases to be an
Immaterial  Subsidiary),  the Borrower  will execute and deliver to the Agent an
amendment or  supplement  to the Pledge  Agreement  pursuant to which all of the
capital  stock or other  ownership  interests  of such  new  Subsidiary  and any
promissory  notes from such new  Subsidiary to the Borrower  shall be pledged to
the Agent, together with the certificates, if any, evidencing such capital stock
or other ownership interests and undated stock powers duly executed in blank and
any such  promissory  notes duly endorsed in blank;  and  concurrently  with the
creation or acquisition of any new Wholly Owned  Subsidiary the capital stock or
other  ownership  interests of which are directly  owned by another Wholly Owned
Subsidiary (the "Parent Subsidiary") of the Borrower,  if such new Subsidiary is
a Material  Subsidiary  (or, if such new Subsidiary is an Immaterial  Subsidiary
when so created or  acquired,  promptly  (and in any event  within  fifteen (15)
Business Days) after such new Subsidiary ceases to be an Immaterial Subsidiary),
the Parent  Subsidiary will execute and deliver to the Agent a pledge agreement,
in form and substance substantially identical to the Pledge Agreement,  pursuant
to which  all of the  capital  stock or other  ownership  interests  of such new
Subsidiary  and any  promissory  notes  from such new  Subsidiary  to the Parent
Subsidiary  shall be pledged to the Agent,  together with the  certificates,  if
any,  evidencing  such capital  stock or other  ownership  interests and undated
stock powers duly executed in blank and any such promissory  notes duly endorsed
in blank;

      (c) Promptly (and in any event within  fifteen (15)  Business  Days) after
any existing Wholly Owned Subsidiary that was an Immaterial Subsidiary as of the
Closing Date ceases to be an Immaterial  Subsidiary,  (i) such  Subsidiary  will
execute  and  deliver to the Agent a  supplement  or  joinder  to the  Guaranty,
pursuant to which such Subsidiary shall become a guarantor thereunder,  and (ii)
the Borrower will execute and deliver to the Agent an amendment or supplement to
the  Pledge  Agreement  pursuant  to  which  all of the  common  stock  or other
ownership  interests  of such  Subsidiary  and any  promissory  notes  from such


                                       58
<PAGE>

Subsidiary  to the  Borrower  shall be pledged to the Agent,  together  with the
certificates, if any, evidencing such capital stock or other ownership interests
and undated  stock powers duly executed in blank and any such  promissory  notes
duly endorsed in blank; and

      (d) As promptly as reasonably possible,  the Borrower and its Subsidiaries
will deliver any such other  documents,  certificates  and  opinions  (including
opinions  of local  counsel  in the  jurisdiction  of  organization  of each new
Subsidiary),  in form and substance reasonably satisfactory to the Agent, as the
Agent may  reasonably  request in connection  with the actions taken pursuant to
this Section 6.10,  and will take such other action as the Agent may  reasonably
request to create in favor of the Agent a  perfected  security  interest  in the
Collateral pledged pursuant to this Section 6.10.

      6.11 Further  Assurances.  The Borrower  will,  and will cause each of its
Subsidiaries to, make, execute, endorse, acknowledge and deliver any amendments,
modifications  or  supplements  hereto  and  restatements  hereof  and any other
agreements,  instruments or documents,  and take any and all such other actions,
as may from time to time be  reasonably  requested  by the Agent or the Required
Lenders to perfect and maintain  the validity and priority of the Liens  granted
pursuant to the Security  Documents and to effect,  confirm or further assure or
protect and  preserve  the  interests,  rights and remedies of the Agent and the
Lenders under this Agreement and the other Credit Documents.


                                   ARTICLE VII

                               FINANCIAL COVENANTS

      The Borrower  covenants  and agrees  that,  until the  termination  of the
Commitments  and all Letters of Credit and the payment in full of all  principal
and  interest  with  respect  to the  Loans  and all  Reimbursement  Obligations
together with all other amounts then due and owing hereunder:

      7.1 Leverage Ratio.  The Borrower will not permit the Leverage Ratio as of
the last day of any fiscal  quarter  during the  periods  set forth  below to be
greater than the ratio set forth below opposite such period:
<TABLE>

<CAPTION>

          Date                             Leverage Ratio
          ----                             --------------
          <S>                              <C>
          Closing Date through             2.50 : 1.0
             October 1, 2000

          October 2, 2000 through          2.25 : 1.0
             July 8, 2001

          Thereafter                       1.75 : 1.0
</TABLE>

      7.2 Interest  Coverage  Ratio.  The Borrower  will not permit the Interest
Coverage  Ratio as of the last day of any fiscal  quarter during the periods set
forth below to be less than the ratio set forth below opposite such period:


                                       59
<PAGE>
                                       
<TABLE>

 <CAPTION>
          Date                             Interest Coverage Ratio
          ----                             -----------------------
          <S>                              <C>
          Closing Date through             3.0 : 1.0
             January 2, 2000

          January 3, 2000 through          3.5 : 1.0
             October 1, 2000

          Thereafter                       4.0 : 1.0
</TABLE>

      7.3 Fixed Charge  Coverage  Ratio.  The Borrower will not permit the Fixed
Charge Coverage Ratio as of the last day of any fiscal  quarter,  beginning with
the fiscal quarter ending January 3, 1999, to be less than 1.1 to 1.0.

      7.4 Consolidated Net Worth. The Borrower will not permit  Consolidated Net
Worth  as of the last  day of any  fiscal  quarter,  beginning  with the  fiscal
quarter  ending  January 3, 1999,  to be less than the sum of (i)  $115,000,000,
plus (ii) 75% of the  aggregate  of  Consolidated  Net  Income  for each  fiscal
quarter ending after October 4, 1998 (provided that  Consolidated Net Income for
any such  fiscal  quarter  shall be taken  into  account  for  purposes  of this
calculation  only if positive),  plus (iii) 100% of the aggregate  amount of all
increases in the stated capital and additional  paid-in capital  accounts of the
Borrower  and  its  Subsidiaries,  as  determined  on a  consolidated  basis  in
accordance with Generally  Accepted  Accounting  Principles,  resulting from the
issuance of equity  securities  (including  pursuant to the exercise of options,
rights or warrants or pursuant to the conversion of  convertible  securities) or
other  capital  investments  after  October  4,  1998,  minus  (iv)  100% of the
aggregate  amount of stock  repurchases  effected  by the  Borrower  during such
fiscal quarter,  provided that nothing in this section shall be deemed to permit
any stock repurchases not expressly permitted under Section 8.6(a)(iii).


                                  ARTICLE VIII

                               NEGATIVE COVENANTS

      The Borrower  covenants  and agrees  that,  until the  termination  of the
Commitments  and all Letters of Credit and the payment in full of all  principal
and  interest  with  respect  to the  Loans and all  Reimbursement  Obligations,
together with all other amounts then due and owing hereunder:

      8.1 Merger;  Consolidation.  The Borrower will not, and will not permit or
cause any of its Subsidiaries to, liquidate,  wind up or dissolve, or enter into
any  consolidation,  merger  or  other  combination,  or  agree to do any of the
foregoing; provided, however, that:

          (i) the Borrower may merge or consolidate  with another Person so long
     as (x) the  Borrower is the  surviving  corporation,  (y) if such merger or
     consolidation is in connection with a Permitted Acquisition, the applicable
     conditions  of Section 6.9 shall be  satisfied  and (z)  immediately  after
     giving  effect thereto, no Default  or Event  of Default would  exist;  and

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          (ii) any Subsidiary  may merge or  consolidate  with another Person so
     long as (x) the  surviving  corporation  is the  Borrower or a Wholly Owned
     Subsidiary,  (y) if such merger or  consolidation  is in connection  with a
     Permitted  Acquisition,  the applicable conditions of Sections 6.9 and 6.10
     shall be satisfied  and (z)  immediately  after giving effect  thereto,  no
     Default or Event of Default would exist.

      8.2 Indebtedness.  The Borrower will not, and will not permit or cause any
of  its  Subsidiaries  to,  create,   incur,  assume  or  suffer  to  exist  any
Indebtedness other than:

          (i) Indebtedness incurred under this Agreement;

          (ii)  Indebtedness  existing  on the  Closing  Date and  described  on
     Schedule 8.2;

          (iii)  Indebtedness  of the Borrower under Hedge  Agreements  required
     pursuant to Section 6.8;

          (iv) accrued  expenses,  current trade or other  accounts  payable and
     other current  liabilities  arising in the ordinary  course of business and
     not incurred  through the borrowing of money,  provided that the same shall
     be paid when due except to the extent being  contested in good faith and by
     appropriate proceedings;

          (v) Indebtedness under letters of credit (other than Letters of Credit
     issued  pursuant to Article III) issued for the benefit of the Borrower and
     its  Subsidiaries  incurred  in the  ordinary  course  of  business,  in an
     aggregate  amount  (whether drawn or available to be drawn  thereunder) not
     exceeding $1,000,000 at any time outstanding; and

          (vi)  unsecured   Indebtedness  of  the  Borrower  that  is  expressly
     subordinated  and  made  junior  in  right  and  time  of  payment  to  the
     Obligations  and that is  evidenced by one or more  written  agreements  or
     instruments  having terms,  conditions and provisions  (including,  without
     limitation,  provisions relating to principal amount, maturity,  covenants,
     defaults,  interest, and subordination)  satisfactory in form and substance
     to the Required  Lenders in their sole  discretion and which shall provide,
     at a minimum  and  without  limitation,  that such  Indebtedness  (a) shall
     mature by its terms no earlier than the second  anniversary of the Maturity
     Date, (b) shall not require any scheduled payment of principal prior to the
     first  anniversary  of the Maturity  Date, and (c) shall have covenants and
     undertakings  that,  taken as a whole, are materially less restrictive than
     those   contained   herein   (the   Indebtedness   described   hereinabove,
     "Subordinated  Indebtedness");  provided that, as further conditions to the
     issuance of any  Subordinated  Indebtedness,  (1) immediately  after giving
     effect to the  issuance of such  Subordinated  Indebtedness,  no Default or
     Event of Default shall exist, (2) all agreements and instruments evidencing
     or governing  such  Subordinated  Indebtedness  shall have been approved in
     writing by the  Required  Lenders (or the Agent on their  behalf),  and (3)
     prior  to  or   concurrently   with  the  issuance  of  such   Subordinated
     Indebtedness,   the  Borrower   shall  have  delivered  to  each  Lender  a
     certificate,  signed  by the  chief  financial  officer  of  the  Borrower,
     satisfactory  in form and  substance  to the  Required  Lenders  and to the
     effect that,  after giving effect to the  incurrence  of such  Subordinated
     Indebtedness,  the Borrower is in compliance  with the financial  covenants
     set forth in Sections 7.1 through 7.4,  such  compliance  being  determined

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     with regard to  calculations  made on a pro forma basis in accordance  with
     Generally Accepted  Accounting  Principles as of the last day of the fiscal
     quarter then most recently ended and as if such  Subordinated  Indebtedness
     had  been  incurred  on the  first  day of the  period  applicable  to such
     covenants  (such  calculations  to be  attached to such  certificate);  and
     provided  further  that the Net Cash  Proceeds  from the  issuance  of such
     Subordinated   Indebtedness  shall  be  applied  to  prepay  the  Loans  in
     accordance  with,  and to the extent  required  under,  the  provisions  of
     Section 2.6(d);  

          (vii) Indebtedness  (other than Indebtedness  specified in clauses (i)
     through  (iv) and  clause  (vi)  above)  that  shall not at any time,  when
     combined  with the  aggregate  amount of all  Indebtedness  incurred  under
     clause (v) above  outstanding at such time,  exceed $5,000,000 in aggregate
     principal amount  outstanding at such time (which  Indebtedness  under this
     clause (vi) shall include,  without  limitation,  any  Indebtedness  of the
     Borrower  and its  Subsidiaries  of the type  described  in, and secured by
     Liens of the types described in, clause (vi) of Section 8.3).

      8.3 Liens.  The Borrower will not, and will not permit or cause any of its
Subsidiaries to, directly or indirectly,  make, create,  incur, assume or suffer
to exist,  or enter into or suffer to exist any  agreement or  restriction  that
prohibits or conditions the creation, incurrence or assumption of, any Lien upon
or with  respect to any part of its  property  or assets,  whether  now owned or
hereafter  acquired,  or  agree  to do any  of the  foregoing,  other  than  the
following (collectively, "Permitted Liens"):

          (i) Liens created under the Security Documents;

          (ii) Liens in  existence on the Closing Date and set forth on Schedule
     8.3;

          (iii) Liens imposed by law,  such as Liens of carriers,  warehousemen,
     mechanics,  materialmen and landlords,  and other similar Liens incurred in
     the ordinary  course of business for sums not  constituting  borrowed money
     that are not overdue for a period of more than thirty (30) days or that are
     being  contested  in good faith by  appropriate  proceedings  and for which
     adequate  reserves  have been  established  in  accordance  with  Generally
     Accepted Accounting Principles;

          (iv) Liens  (other  than any Lien  imposed by ERISA,  the  creation or
     incurrence  of which  would  result in an Event of  Default  under  Section
     9.1(j))  incurred in the  ordinary  course of business in  connection  with
     worker's   compensation,   unemployment   insurance   or  other   forms  of
     governmental insurance or benefits, or to secure the performance of letters
     of credit, bids, tenders,  statutory obligations,  surety and appeal bonds,
     leases,  government  contracts  and other similar  obligations  (other than
     obligations  for borrowed  money)  entered  into in the ordinary  course of
     business;

          (v) Liens for  taxes,  assessments  or other  governmental  charges or
     statutory obligations that are not delinquent or remain payable without any
     penalty  or  that  are  being   contested  in  good  faith  by  appropriate
     proceedings  and for  which  adequate  reserves  have been  established  in
     accordance with Generally Accepted Accounting Principles;

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<PAGE>

          (vi) Purchase money Liens upon property used by the Borrower or any of
     its  Subsidiaries  in  the  ordinary  course  of  its  business,   securing
     Indebtedness  incurred solely to pay all or a portion of the purchase price
     thereof  (including in connection with capital  leases),  provided that the
     aggregate  principal  amount at any time  outstanding  of all  Indebtedness
     secured by such Liens,  when taken together with all other  Indebtedness of
     the Borrower and its  Subsidiaries  incurred  subject to the limitation set
     forth in clause (vii) of Section 8.2, does not exceed the dollar amount set
     forth in such  clause,  and  provided  further that any such Lien (i) shall
     attach to such property concurrently with or within ten (10) days after the
     acquisition  thereof by the  Borrower  or such  Subsidiary,  (ii) shall not
     exceed the lesser of (y) the fair market value of such  property or (z) the
     cost  thereof  to the  Borrower  or such  Subsidiary  and  (iii)  shall not
     encumber any other property of the Borrower or any of its Subsidiaries;

          (vii) Liens on Borrower  Margin  Stock,  to the extent the fair market
     value  thereof  exceeds 25% of the fair  market  value of the assets of the
     Borrower and its Subsidiaries (including Borrower Margin Stock);

          (viii) With respect to any real  property  occupied by the Borrower or
     any of its Subsidiaries, all easements, rights of way, licenses and similar
     encumbrances  on  title  that  do not  materially  impair  the  use of such
     property for its intended purposes; and

          (ix) Liens in favor of the  trustee or agent  under any  agreement  or
     indenture  relating to Subordinated  Indebtedness of the Borrower permitted
     under this  Agreement,  covering  sums  required to be deposited  with such
     trustee or agent thereunder.

      8.4  Disposition of Assets.  The Borrower will not, and will not permit or
cause any of its  Subsidiaries  to, sell,  assign,  lease,  convey,  transfer or
otherwise  dispose of  (whether in one or a series of  transactions)  all or any
portion of its assets,  business or  properties,  or enter into any  arrangement
with any Person  providing  for the lease by the Borrower or any  Subsidiary  as
lessee of any asset that has been sold or  transferred  by the  Borrower or such
Subsidiary to such Person, or agree to do any of the foregoing, except for:

          (i) sales of inventory (including rental tapes) in the ordinary course
     of business;

          (ii) the sale or exchange of used or obsolete  equipment to the extent
     (y) the  proceeds of such sale are applied  towards,  or such  equipment is
     exchanged for,  similar  replacement  equipment or (z) such equipment is no
     longer  necessary  for the  operations  of the  Borrower or its  applicable
     Subsidiary in the ordinary course of business;

          (iii)  the  sale  or  other   disposition  by  the  Borrower  and  its
     Subsidiaries  of any  Borrower  Margin  Stock to the extent the fair market
     value  thereof  exceeds 25% of the fair  market  value of the assets of the
     Borrower and its Subsidiaries  (including Borrower Margin Stock),  provided
     that fair value is received in exchange therefor;

          (iv) the sale, lease or other disposition of assets by a Subsidiary of
     the Borrower to the  Borrower or to another  Wholly  Owned  Subsidiary  if,
     immediately  after giving  effect  thereto,  no Default or Event of Default
     would exist;

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<PAGE>

          (v) the sale or disposition  of assets outside the ordinary  course of
     business for cash,  provided that (w) the Net Cash Proceeds from such sales
     or dispositions do not exceed  $5,000,000 in the aggregate for the Borrower
     and  its  Subsidiaries  during  any  fiscal  year,  (x) to the  extent  not
     theretofore   expended  to  acquire   assets  or  properties  or  otherwise
     reinvested in its  businesses  of the Borrower,  such Net Cash Proceeds are
     delivered to the Agent within one hundred  eighty (180) days after  receipt
     thereof for  application in prepayment of the Loans in accordance  with the
     provisions of Section 2.6(f),  (y) in no event shall the Borrower or any of
     its Subsidiaries  sell or otherwise  dispose of any of the capital stock or
     other  ownership   interests  of  any  Subsidiary  (other  than  Immaterial
     Subsidiaries),  and (z) immediately after giving effect thereto, no Default
     or Event of Default would exist; and

          (vi)  Designated  Store  Exchanges,  provided that (w) the fair market
     value of all assets and properties that are the subject of Designated Store
     Exchanges during any fiscal year do not exceed  $7,500,000 in the aggregate
     for the Borrower and its  Subsidiaries,  (x) to the extent not  theretofore
     expended to acquire  assets or  properties  or otherwise  reinvested in the
     businesses  of the  Borrower,  the Net Cash  Proceeds (if any)  received in
     connection with each  Designated  Store Exchange are delivered to the Agent
     within ninety (90) days after receipt thereof for application in prepayment
     of the Loans in accordance with the provisions of Section  2.6(f),  (y) not
     less than five (5) days prior to the  consummation of any Designated  Store
     Exchange  involving  stores of the Borrower with greater than $1,250,000 in
     revenues for the twelve-month period then most recently ended, the Borrower
     furnishes the Agent with notice and a reasonably  detailed  description  of
     the terms thereof,  and (z)  immediately  after giving effect  thereto,  no
     Default or Event of Default would exist.

      8.5  Investments.  The Borrower will not, and will not permit or cause any
of its  Subsidiaries  to,  directly or indirectly,  purchase,  own, invest in or
otherwise  acquire  any  capital  stock,   evidence  of  indebtedness  or  other
obligation or security or any interest  whatsoever in any other Person,  or make
or  permit to exist any  loans,  advances  or  extensions  of credit  to, or any
investment in cash or by delivery of property in, any other Person,  or purchase
or otherwise  acquire (whether in one or a series of related  transactions)  any
portion of the  assets,  business or  properties  of another  Person  (including
pursuant  to an  Acquisition),  or become a  partner  or joint  venturer  in any
partnership or joint venture (collectively, "Investments"), or make a commitment
or otherwise agree to do any of the foregoing, other than:

          (i) Cash Equivalents;

          (ii) purchases and acquisitions of inventory,  supplies, materials and
     equipment in the ordinary course of business;

          (iii)  Investments  consisting  of loans and advances to employees for
     reasonable travel,  relocation and business expenses in the ordinary course
     of  business  or  prepaid  expenses  incurred  in the  ordinary  course  of
     business;

          (iv) Without duplication,  Investments  consisting of (y) Indebtedness
     permitted under Section 8.2 and (z) Designated  Store  Exchanges  permitted
     under Section 8.4;

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<PAGE>

          (v) Investments existing on the Closing Date and described in Schedule
     8.5;

          (vi)  Investments  in  connection  with  Permitted  Acquisitions  with
     respect to which the conditions and  requirements  of Section 6.9 have been
     satisfied;

          (vii)  Investments  in existing  Subsidiaries  and in newly created or
     acquired  Subsidiaries with respect to which the applicable  conditions and
     requirements of Sections 6.9 and 6.10 have been satisfied;

          (viii)  Investments  (other than Investments  specified in clauses (i)
     through  (vii)  above)  in  an  aggregate  amount  that  shall  not  exceed
     $5,000,000 for all such Investments from and after the Closing Date; and

          (ix) any other  Investments  that may be  approved  in  writing by the
     Required Lenders from time to time.

      8.6 Restricted Payments. (a) The Borrower will not, and will not permit or
cause any of its  Subsidiaries  to, directly or indirectly,  declare or make any
dividend payment, or make any other distribution of cash, property or assets, in
respect  of any of its  capital  stock or any  warrants,  rights or  options  to
acquire its capital stock, or purchase,  redeem, retire or otherwise acquire for
value any  shares of its  capital  stock or any  warrants,  rights or options to
acquire its capital stock,  or set aside funds for any of the foregoing,  except
that:

          (i) the  Borrower  may  declare  and make  dividend  payments or other
     distributions payable solely in its common stock;

          (ii) each Wholly Owned Subsidiary of the Borrower may declare and make
     dividend payments or other  distributions to the Borrower or another Wholly
     Owned  Subsidiary  of the  Borrower,  to the  extent not  prohibited  under
     applicable Requirements of Law; and

          (iii)  so  long  as  no  Default  or  Event  of  Default  would  exist
     immediately after giving effect thereto, the Borrower may purchase, redeem,
     retire or  otherwise  acquire  shares of its capital  stock in an aggregate
     amount that,  when combined with the  aggregate  amount of all  Investments
     made by the  Borrower  and its  Subsidiaries  pursuant to clause  (viii) of
     Section  8.5,  shall not exceed  $5,000,000  for all such  Investments  and
     acquisitions from and after the Closing Date; provided,  however,  that the
     Borrower may effect incremental acquisitions of shares of its capital stock
     in an aggregate amount that, when combined with the aggregate amount of all
     Investments  made by the Borrower and its  Subsidiaries  pursuant to clause
     (viii)  of  Section  8.5,  shall  not  exceed   $10,000,000  for  all  such
     Investments and  acquisitions  from and after the Closing Date, so long as,
     immediately after giving effect to each such incremental  acquisition,  the
     Leverage  Ratio would be less than 2.0 to 1.0,  such ratio to be determined
     on a pro forma  basis in  accordance  with  Generally  Accepted  Accounting
     Principles as of the last day of the most recently  ended fiscal quarter as
     if  such  acquisition  had  been  effected  as of such  date  and as if all
     Indebtedness   outstanding  on  the  date  of  such  acquisition  had  been
     outstanding as of the  last day of the most recently ended  fiscal quarter.

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<PAGE>

      (b) The  Borrower  will  not,  and will  not  permit  or cause  any of its
Subsidiaries  to,  make (or give any  notice in  respect  of) any  voluntary  or
optional payment or prepayment of principal on any Subordinated Indebtedness, or
directly or indirectly make any redemption  (including pursuant to any change of
control provision), retirement, defeasance or other acquisition for value of any
Subordinated Indebtedness,  or make any deposit or otherwise set aside funds for
any of the foregoing purposes.

      8.7  Transactions  with  Affiliates.  The Borrower  will not, and will not
permit or cause any of its  Subsidiaries to, enter into any transaction with any
officer,  director,  stockholder  or  other  Affiliate  of the  Borrower  or any
Subsidiary,  except in the  ordinary  course of its  business  and upon fair and
reasonable  terms  that  are no less  favorable  to it than  would  obtain  in a
comparable arm's length transaction with a Person other than an Affiliate of the
Borrower or such Subsidiary;  provided,  however, that nothing contained in this
Section shall prohibit:

          (i)  transactions  described on Schedule  8.7 or  otherwise  expressly
     permitted   hereunder,   provided  that  the  terms  of  any  agreement  or
     arrangement  relating to any of the transactions  described on Schedule 8.7
     are not,  at any time from and  after the  Closing  Date,  materially  less
     favorable  to the  Borrower  and its  Subsidiaries  than the  terms of such
     agreement  or  arrangement  as in effect  during the period  with regard to
     which such agreement or arrangement is described on Schedule 8.7;

          (ii) the payment by the Borrower of reasonable  and customary  fees to
     members of its board of directors; and

          (iii) loans by the Borrower to its officers or directors not to exceed
     $1,000,000 outstanding in the aggregate at any time, provided that any such
     loan is made upon fair and  reasonable  terms that are no less favorable to
     the Borrower  than would obtain in a  comparable  arm's length  transaction
     with a Person other than an Affiliate of the Borrower.

      8.8 Lines of Business. The Borrower will not, and will not permit or cause
any of its  Subsidiaries  to,  engage in any business  other than the  Permitted
Lines of Business.

      8.9  Limitation on Certain  Restrictions.  The Borrower will not, and will
not permit or cause any of its Subsidiaries  to, directly or indirectly,  create
or otherwise  cause or suffer to exist or become  effective any  restriction  or
encumbrance on (i) the ability of the Borrower and its  Subsidiaries  to perform
and comply with their respective  obligations under the Credit Documents or (ii)
the ability of any  Subsidiary of the Borrower to make any dividend  payments or
other  distributions  in respect of its capital stock, to make loans or advances
to the  Borrower or any other  Subsidiary,  or to transfer  any of its assets or
properties to the Borrower or any other Subsidiary, in each case other than such
restrictions or encumbrances existing under or by reason of the Credit Documents
or applicable Requirements of Law.

      8.10 Fiscal  Periods.  The Borrower will not, and will not permit or cause
any of its  Subsidiaries  to,  change  any of the  ending  dates  of its  fiscal
quarters  and fiscal  years  through and  including  the fiscal  quarter  ending
April7,  2002 from those set forth on  Schedule  8.10,  unless (i) the  Borrower


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<PAGE>

shall have given the Lenders  written notice of its intention to change any such
ending  dates at least sixty (60) days prior to the  effective  date thereof and
(ii) prior to such effective date this Agreement shall have been amended to make
any changes in the  financial  covenants  and other terms and  conditions to the
extent  necessary,  in the  reasonable  determination  of the Required  Lenders,
solely to reflect such new ending dates.

      8.11  Accounting  Changes.  The Borrower  will not, and will not permit or
cause any of its  Subsidiaries  to,  make or permit any  material  change in its
accounting  policies  or  reporting  practices,  except  as may be  required  by
Generally  Accepted  Accounting  Principles,  and except for changes  that would
shorten  amortization  periods for rental  video  tapes,  which  changes are not
prohibited by Regulation S-X under the Securities Act of 1933, as amended, or by
any rulings or announcements by the Securities and Exchange Commission.


                                   ARTICLE IX

                                EVENTS OF DEFAULT

      9.1 Events of Default.  The occurrence of any one or more of the following
events shall constitute an "Event of Default":

      (a) The Borrower shall fail to pay any principal of any Loan when due;

      (b)  The  Borrower  shall  fail  to pay  any  interest  on any  Loan,  any
Reimbursement  Obligation,  any fee or any other  Obligation  when due, and such
failure shall continue unremedied for one (1) Business Day;

      (c) The  Borrower  shall  fail to  observe,  perform  or  comply  with any
condition,  covenant or agreement contained in any of Sections 2.13,  6.2(e)(i),
6.3(i), 6.9, 6.10, Article VII or Article VIII;

      (d) The Borrower or any of its Subsidiaries shall fail to observe, perform
or comply with any condition,  covenant or agreement contained in this Agreement
or any of the other Credit  Documents other than those enumerated in subsections
(a), (b) and (c) above, and such failure shall continue unremedied for any grace
period  specifically   applicable  thereto  or,  if  no  such  grace  period  is
applicable,  for a period of thirty  (30) days after the  earlier of the date on
which a Responsible  Officer of the Borrower  acquires  knowledge thereof or the
date of delivery of notice thereof by the Agent;

      (e) Any  representation or warranty made or deemed made by or on behalf of
the  Borrower or any of its  Subsidiaries  in this  Agreement,  any of the other
Credit  Documents or in any  certificate,  instrument,  report or other document
furnished  in  connection  herewith  or  therewith  or in  connection  with  the
transactions  contemplated  hereby or thereby  shall prove to have been false or
misleading  in any  material  respect  as of  the  time  made,  deemed  made  or
furnished;

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<PAGE>

      (f) The Borrower or any of its Subsidiaries shall (i) fail to pay when due
(whether by  scheduled  maturity,  acceleration  or  otherwise  and after giving
effect to any  applicable  grace  period)  any  principal  of or interest on any
Indebtedness  (other than the Indebtedness  incurred pursuant to this Agreement)
having  an  aggregate  principal  amount of at least  $500,000;  or (ii) fail to
observe,  perform or comply with any condition,  covenant or agreement contained
in any agreement or instrument  evidencing or relating to any such Indebtedness,
or any other event shall occur or condition  exist in respect  thereof,  and the
effect of such failure,  event or condition is to cause, or permit the holder or
holders of such  Indebtedness  (or a trustee or agent on its or their behalf) to
cause  (with the  giving of notice,  lapse of time,  or both,  and after  giving
effect to any applicable grace period),  such  Indebtedness to become due, or to
be prepaid, redeemed, purchased or defeased, prior to its stated maturity;

      (g) The  Borrower  or any of its  Subsidiaries  shall (i) file a voluntary
petition  or  commence  a  voluntary  case  seeking   liquidation,   winding-up,
reorganization,  dissolution,  arrangement,  readjustment  of debts or any other
relief  under the  Bankruptcy  Code or under any  other  applicable  bankruptcy,
insolvency  or  similar  law now or  hereafter  in effect,  (ii)  consent to the
institution  of, or fail to controvert in a timely and appropriate  manner,  any
petition or case of the type described in subsection (h) below,  (iii) apply for
or consent to the appointment of or taking  possession by a custodian,  trustee,
receiver or similar  official for or of itself or all or a  substantial  part of
its  properties  or  assets,  (iv)  fail  generally,  or  admit in  writing  its
inability,  to pay its debts  generally  as they become due,  (v) make a general
assignment  for the benefit of  creditors or (vi) take any  corporate  action to
authorize or approve any of the foregoing;

      (h) Any involuntary  petition or case shall be filed or commenced  against
the  Borrower  or any  of  its  Subsidiaries  seeking  liquidation,  winding-up,
reorganization, dissolution, arrangement, readjustment of debts, the appointment
of a  custodian,  trustee,  receiver  or  similar  official  for  it or all or a
substantial part of its properties or any other relief under the Bankruptcy Code
or under any other  applicable  bankruptcy,  insolvency  or  similar  law now or
hereafter in effect,  and such petition or case shall continue  undismissed  and
unstayed  for a period  of sixty  (60)  days;  or an order,  judgment  or decree
approving  or  ordering  any of the  foregoing  shall  be  entered  in any  such
proceeding;

      (i) Any one or more money  judgments,  writs or  warrants  of  attachment,
executions  or similar  processes  involving an aggregate  amount  (exclusive of
amounts  fully bonded or covered by insurance as to which the surety or insurer,
as the case may be, has  acknowledged  its  liability  in  writing) in excess of
$750,000  shall  be  entered  or  filed  against  the  Borrower  or  any  of its
Subsidiaries  or any of their  respective  properties  and the same shall not be
dismissed, stayed or discharged for a period of thirty (30) days;

      (j) Any ERISA  Event  shall  occur or exist  with  respect  to any Plan or
Multiemployer  Plan and,  as a result  thereof,  together  with all other  ERISA
Events then existing,  there shall exist a reasonable likelihood of liability to
any  one  or  more  Plans  or  Multiemployer  Plans  or to the  PBGC  (or to any
combination  thereof) in excess of $750,000  with respect to the Borrower or any
ERISA Affiliate;

      (k) Any one or more licenses, permits, accreditations or authorizations of
the  Borrower  or  any  of its  Subsidiaries  shall  be  suspended,  limited  or
terminated or shall not be renewed,  or any other action shall be taken,  by any
Governmental Authority in response to any alleged failure by the Borrower or any
of its Subsidiaries to be in compliance with applicable Requirements of Law, and


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such action,  individually  or in the aggregate,  would be reasonably  likely to
have a Material Adverse Effect;

      (l) Any Material Contract to which the Borrower or any of its Subsidiaries
is a party shall be  terminated or shall,  for any other  reason,  fail to be in
full force and effect and  enforceable  in accordance  with its terms,  and such
event or condition,  together with all other such events or conditions,  if any,
would be reasonably likely to have a Material Adverse Effect;

      (m)  There  shall  occur  any  uninsured  damage  to,  or  loss,  theft or
destruction  of, any assets or properties  of the Borrower and its  Subsidiaries
that would be reasonably likely to have a Material Adverse Effect;

      (n) Any Security Document to which the Borrower or any of its Subsidiaries
is now or  hereafter a party shall for any reason  cease to be in full force and
effect or cease to be effective to give the Agent a valid and perfected security
interest  in and Lien  upon the  Collateral  purported  to be  covered  thereby,
subject to no Liens  other than  Permitted  Liens,  in each case unless any such
cessation  occurs in  accordance  with the terms thereof or is due to any act or
failure to act on the part of the Agent or any  Lender;  or the  Borrower or any
such  Subsidiary  shall assert any of the  foregoing;  or any  Subsidiary or any
Person  acting  on  its  behalf  shall  deny  or  disaffirm  such   Subsidiary's
obligations under the Guaranty;

      (o)  Either  (i) Joe  Thomas  Malugen  shall  have  ceased to be the chief
executive  officer of the Borrower or to continue to perform his current  duties
as chief executive officer, or (ii) Robert L. Sirkis shall have ceased to be the
chief  operating  officer of the  Borrower or to continue to perform his current
duties as chief  operating  officer,  and in either case under (i) or (ii) above
the  Borrower  shall  have  failed to hire or appoint a  replacement  reasonably
satisfactory to the Required Lenders within 180 days thereafter; or

      (p) Any of the following  shall occur:  (i) any Person or group of Persons
acting in concert as a partnership or other group shall, as a result of a tender
or exchange offer,  open market  purchases,  privately  negotiated  purchases or
otherwise,  have become,  after the date hereof,  the "beneficial owner" (within
the meaning of such term under Rule 13d-3 under the Exchange  Act) of securities
of the Borrower  representing  a percentage of the combined  voting power of the
then  outstanding  securities of the Borrower  ordinarily (and apart from rights
accruing under special  circumstances)  having the right to vote in the election
of directors  equal to the lower of (y) 20% or (z) the  percentage of beneficial
ownership of the Borrower's  common stock that would,  upon the lapse of time or
the occurrence of certain events, permit the Borrower's stockholders (other than
the acquiring Person or group) to exercise stock purchase rights pursuant to any
stockholder  rights  plan then in  effect;  (ii) the Board of  Directors  of the
Borrower shall cease to consist of a majority of the individuals who constituted
the Board of  Directors  of the Borrower as of the date hereof or who shall have
become  a member  thereof  subsequent  to the  date  hereof  after  having  been
nominated,  or  otherwise  approved  in  writing,  by at  least  a  majority  of
individuals  who  constituted  the Board of  Directors of the Borrower as of the
date hereof (or their  replacements  approved as herein required);  or (iii) Joe
Thomas Malugen shall cease to be the beneficial owner of the number of shares of
the Borrower's common stock that constitutes 75% of the number of shares of such


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<PAGE>

common  stock (as such number may be  adjusted  from time to time after the date
hereof to give effect to any stock splits,  stock  dividends,  or  subdivisions,
combinations,  reclassifications  or reorganizations  with regard to such common
stock) beneficially owned by him as of April 15, 1998.

      9.2 Remedies: Termination of Commitments,  Acceleration,  etc. Upon and at
any time  after  the  occurrence  and  during  the  continuance  of any Event of
Default,  the Agent  shall at the  direction,  or may with the  consent,  of the
Required  Lenders,  take  any or all of the  following  actions  at the  same or
different times:

      (a) Declare the  Commitments,  the Swingline  Commitment,  and the Issuing
Lender's  obligation to issue Letters of Credit to be terminated,  whereupon the
same shall terminate  (provided that, upon the occurrence of an Event of Default
pursuant to Section 9.1(g) or Section  9.1(h),  the  Commitments,  the Swingline
Commitment and the Issuing Lender's  obligation to issue Letters of Credit shall
automatically be terminated);

      (b) Declare  all or any part of the  outstanding  principal  amount of the
Loans to be  immediately  due and payable,  whereupon  the  principal  amount so
declared to be immediately due and payable,  together with all interest  accrued
thereon and all other amounts  payable under this  Agreement,  the Notes and the
other  Credit  Documents,  shall  become  immediately  due and  payable  without
presentment,  demand, protest, notice of intent to accelerate or other notice or
legal  process of any kind,  all of which are  hereby  knowingly  and  expressly
waived  by the  Borrower  (provided  that,  upon the  occurrence  of an Event of
Default  pursuant to Section 9.1(g) or Section  9.1(h),  all of the  outstanding
principal amount of the Loans and all other amounts described in this subsection
(b) shall automatically  become immediately due and payable without presentment,
demand, protest, notice of intent to accelerate or other notice or legal process
of any kind,  all of which are  hereby  knowingly  and  expressly  waived by the
Borrower);

      (c) Direct  the  Borrower  to deposit  (and the  Borrower  hereby  agrees,
forthwith upon receipt of notice of such  direction from the Agent,  to deposit)
with the Agent from time to time such  additional  amount of cash as is equal to
the aggregate Stated Amount of all Letters of Credit then  outstanding  (whether
or not any  beneficiary  under  any  Letter  of Credit  shall  have  drawn or be
entitled at such time to draw  thereunder),  such amount to be held by the Agent
in the Cash Collateral  Account as security for the Letter of Credit Exposure as
described in Section 3.8; and

      (d) Exercise all rights and remedies available to it under this Agreement,
the other Credit Documents and applicable law.

      9.3  Remedies:  Set-Off.  In  addition  to all other  rights and  remedies
available under the Credit Documents or applicable law or otherwise, upon and at
any time  after  the  occurrence  and  during  the  continuance  of any Event of
Default,  each Lender may, and each is hereby authorized by the Borrower, at any
such time and from time to time, to the fullest  extent  permitted by applicable
law, without  presentment,  demand,  protest or other notice of any kind, all of
which are hereby knowingly and expressly waived by the Borrower,  to set off and
to apply any and all deposits (general or special,  time or demand,  provisional
or final) and any other property at any time held  (including at any branches or
agencies,  wherever  located),  and any other indebtedness at any time owing, by
such Lender to or for the credit or the account of the  Borrower  against any or
all of the Obligations to such Lender now or hereafter existing,  whether or not
such Obligations may be contingent or unmatured, the Borrower hereby granting to


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each Lender a continuing  security  interest in and Lien upon all such  deposits
and other  property  as security  for such  Obligations.  Each Lender  agrees to
notify the Borrower  promptly after any such set-off and application;  provided,
however,  that the failure to give such notice  shall not affect the validity of
such set-off and application.


                                    ARTICLE X

                                    THE AGENT

      10.1 Appointment.  Each Lender hereby irrevocably  appoints and authorizes
First Union to act as Agent  hereunder and under the other Credit  Documents and
to take such actions as agent on its behalf hereunder and under the other Credit
Documents,  and to  exercise  such  powers and to perform  such  duties,  as are
specifically  delegated  to the Agent by the terms  hereof or thereof,  together
with such other powers and duties as are reasonably incidental thereto.

      10.2 Nature of Duties. The Agent shall have no duties or  responsibilities
other than those  expressly  set forth in this  Agreement  and the other  Credit
Documents.  The Agent shall not have,  by reason of this  Agreement or any other
Credit Document, a fiduciary  relationship in respect of any Lender; and nothing
in this Agreement or any other Credit Document,  express or implied, is intended
to or shall be so  construed  as to impose  upon the Agent  any  obligations  or
liabilities in respect of this Agreement or any other Credit  Document except as
expressly  set forth herein or therein.  The Agent may execute any of its duties
under this  Agreement  or any other  Credit  Document  by or  through  agents or
attorneys-in-fact  and shall not be responsible for the negligence or misconduct
of any agents or  attorneys-in-fact  that it selects with  reasonable  care. The
Agent  shall be  entitled  to consult  with legal  counsel,  independent  public
accountants  and  other  experts  selected  by it with  respect  to all  matters
pertaining  to this  Agreement  and the other  Credit  Documents  and its duties
hereunder and thereunder and shall not be liable for any action taken or omitted
to be taken in good faith by it in  accordance  with the advice of such counsel,
accountants or experts.  The Lenders hereby acknowledge that the Agent shall not
be under any duty to take any  discretionary  action permitted to be taken by it
pursuant to the provisions of this Agreement or any other Credit Document unless
it shall be requested in writing to do so by the Required  Lenders (or,  where a
higher percentage of the Lenders is expressly required hereunder, such Lenders).

      10.3  Exculpatory  Provisions.  Neither the Agent nor any of its officers,
directors,  employees,  agents,  attorneys-in-fact  or  Affiliates  shall be (i)
liable for any action taken or omitted to be taken by it or such Person under or
in  connection  with the Credit  Documents,  except for its or such Person's own
gross  negligence or willful  misconduct,  (ii) responsible in any manner to any
Lender for any recitals, statements, information,  representations or warranties
herein  or in  any  other  Credit  Document  or  in  any  document,  instrument,
certificate,  report  or other  writing  delivered  in  connection  herewith  or
therewith,   for   the   execution,   effectiveness,    genuineness,   validity,
enforceability or sufficiency of this Agreement or any other Credit Document, or
for the  financial  condition of the  Borrower,  its  Subsidiaries  or any other
Person,  or (iii)  required  to  ascertain  or make any inquiry  concerning  the
performance or observance of any of the terms,  provisions or conditions of this
Agreement or any other Credit Document or the existence or possible existence of


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any Default or Event of Default, or to inspect the properties,  books or records
of the Borrower or any of its Subsidiaries.

      10.4 Reliance by Agent.  The Agent shall be entitled to rely, and shall be
fully  protected  in  relying,  upon any  notice,  statement,  consent  or other
communication  (including,   without  limitation,   any  thereof  by  telephone,
telecopy,  telex,  telegram or cable) believed by it in good faith to be genuine
and  correct  and to have  been  signed,  sent or made by the  proper  Person or
Persons.  The Agent may deem and treat each Lender as the owner of its  interest
hereunder  for all  purposes  hereof  unless  and until a written  notice of the
assignment,  negotiation or transfer  thereof shall have been given to the Agent
in accordance with the provisions of this Agreement. The Agent shall be entitled
to refrain  from taking or omitting to take any action in  connection  with this
Agreement or any other Credit  Document (i) if such action or omission would, in
the reasonable opinion of the Agent, violate any applicable law or any provision
of this Agreement or any other Credit Document or (ii) unless and until it shall
have received such advice or  concurrence  of the Required  Lenders (or, where a
higher percentage of the Lenders is expressly required hereunder,  such Lenders)
as it  deems  appropriate  or it  shall  first  have  been  indemnified  to  its
satisfaction  by the Lenders  against any and all liability  and expense  (other
than  liability  and expense  arising from its own gross  negligence  or willful
misconduct)  that may be incurred by it by reason of taking,  continuing to take
or omitting to take any such action.  Without limiting the foregoing,  no Lender
shall have any right of action  whatsoever  against the Agent as a result of the
Agent's  acting or  refraining  from acting  hereunder or under any other Credit
Document in accordance with the  instructions of the Required Lenders (or, where
a higher  percentage  of the  Lenders  is  expressly  required  hereunder,  such
Lenders),  and such instructions and any action taken or failure to act pursuant
thereto  shall be binding  upon all of the  Lenders  (including  all  subsequent
Lenders).

      10.5  Non-Reliance  on Agent  and Other  Lenders.  Each  Lender  expressly
acknowledges  that  neither  the  Agent  nor  any  of its  officers,  directors,
employees,  agents,  attorneys-in-fact or Affiliates has made any representation
or  warranty  to it and that no act by the  Agent or any such  Person  hereafter
taken, including any review of the affairs of the Borrower and its Subsidiaries,
shall be deemed to constitute any representation or warranty by the Agent to any
Lender.  Each Lender represents to the Agent that (i) it has,  independently and
without  reliance upon the Agent or any other Lender and based on such documents
and  information  as it has deemed  appropriate,  made its own  appraisal of and
investigation into the business, prospects,  operations,  properties,  financial
and other condition and  creditworthiness  of the Borrower and its  Subsidiaries
and made its own decision to enter into this  Agreement and extend credit to the
Borrower  hereunder,  and (ii) 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 credit  analysis,
appraisals and decisions in taking or not taking action  hereunder and under the
other Credit  Documents and to make such  investigation as it deems necessary to
inform itself as to the business, prospects,  operations,  properties, financial
and other condition and  creditworthiness  of the Borrower and its Subsidiaries.
Except as expressly  provided in this Agreement and the other Credit  Documents,
the  Agent  shall  have no  duty or  responsibility,  either  initially  or on a
continuing  basis,  to provide any Lender  with any credit or other  information
concerning the business, prospects,  operations,  properties, financial or other


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condition or  creditworthiness  of the Borrower,  its  Subsidiaries or any other
Person that may at any time come into the  possession of the Agent or any of its
officers, directors, employees, agents, attorneys-in-fact or Affiliates.

      10.6 Notice of Default. The Agent shall not be deemed to have knowledge or
notice of the  occurrence  of any  Default or Event of Default  unless the Agent
shall have received  written  notice from the Borrower or a Lender  referring to
this  Agreement,  describing  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,  the  Agent  will  give  notice  thereof  to the  Lenders  as soon as
reasonably practicable; provided, however, that if any such notice has also been
furnished  to the  Lenders,  the Agent  shall have no  obligation  to notify the
Lenders  with respect  thereto.  The Agent shall  (subject to Sections  10.4 and
11.6) take such action with respect to such Default or Event of Default as shall
reasonably be directed by the Required Lenders;  provided that, unless and until
the Agent shall have received such  directions,  the Agent may (but shall not be
obligated to) take such action, or refrain from taking such action, with respect
to such  Default  or Event of Default  as it shall  deem  advisable  in the best
interests of the Lenders.

      10.7  Indemnification.  To the extent the Agent is not reimbursed by or on
behalf of the Borrower,  and without  limiting the obligation of the Borrower to
do so, the Lenders agree (i) to indemnify the Agent and its officers, directors,
employees,  agents,  attorneys-in-fact and Affiliates,  ratably in proportion to
their  respective  percentages as used in determining the Required Lenders as of
the  date  of   determination,   from  and  against  any  and  all  liabilities,
obligations,  losses,  damages,  penalties,  actions,  judgments,  suits, costs,
expenses  (including,  without  limitation,  attorneys'  fees and  expenses)  or
disbursements  of any kind or nature  whatsoever that may at any time (including
at any time following the repayment in full of the Loans and the  termination of
the Commitments) be imposed on, incurred by or asserted against the Agent in any
way relating to or arising out of this Agreement or any other Credit Document or
any  documents  contemplated  by or  referred  to  herein  or  the  transactions
contemplated hereby or thereby or any action taken or omitted by the Agent under
or in connection with any of the foregoing, and (ii) to reimburse the Agent upon
demand,  ratably  in  proportion  to  their  respective  percentages  as used in
determining  the  Required  Lenders  as of the  date of  determination,  for any
expenses incurred by the Agent in connection with the preparation,  negotiation,
execution,  delivery,   administration,   amendment,   modification,  waiver  or
enforcement (whether through  negotiations,  legal proceedings or otherwise) of,
or legal advice in respect of rights or  responsibilities  under, this Agreement
or any of the other Credit Documents (including, without limitation,  reasonable
attorneys'  fees and expenses and  compensation of agents and employees paid for
services rendered on behalf of the Lenders);  provided,  however, that no Lender
shall be  liable  for any  portion  of such  liabilities,  obligations,  losses,
damages, penalties,  actions, judgments, suits, costs, expenses or disbursements
to the extent resulting from the gross  negligence or willful  misconduct of the
party to be indemnified.

      10.8 The Agent in its Individual Capacity. With respect to its Commitment,
the Loans made by it, the  Letters of Credit  issued by it and the Note or Notes
issued to it, the Agent in its  individual  capacity and not as Agent shall have
the same rights and powers  under the Credit  Documents  as any other Lender and
may  exercise  the same as  though  it were not  performing  the  agency  duties
specified  herein;  and the terms  "Lenders,"  "Required  Lenders,"  "holders of
Notes" and any  similar  terms  shall,  unless  the  context  clearly  otherwise
indicates,  include  the  Agent in its  individual  capacity.  The Agent and its


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<PAGE>

Affiliates may accept deposits from,  lend money to and generally  engage in any
kind of banking,  trust, financial advisory or other business with the Borrower,
any of its  Subsidiaries or any of their  respective  Affiliates as if the Agent
were not performing the agency duties specified herein,  and may accept fees and
other  consideration  from any of them for  services  in  connection  with  this
Agreement and otherwise without having to account for the same to the Lenders.

      10.9  Successor  Agent.  The Agent may resign at any time by giving thirty
(30) days' prior written  notice to the Borrower and the Lenders.  Upon any such
notice of resignation, the Required Lenders will, with the prior written consent
of the Borrower (which consent shall not be unreasonably withheld), appoint from
among the Lenders a successor to the Agent (provided that the Borrower's consent
shall not be  required  in the event a Default  or Event of  Default  shall have
occurred  and be  continuing).  If no  successor to the Agent shall have been so
appointed  by the  Required  Lenders and shall have  accepted  such  appointment
within such  thirty-day  period,  then the retiring  Agent may, on behalf of the
Lenders  and after  consulting  with the  Lenders  and the  Borrower,  appoint a
successor  Agent from among the Lenders.  Upon the acceptance of any appointment
as Agent by a successor Agent,  such successor Agent shall thereupon  succeed to
and become  vested with all the  rights,  powers,  privileges  and duties of the
retiring  Agent,  and the retiring Agent shall be discharged from its duties and
obligations  hereunder and under the other Credit Documents.  After any retiring
Agent's  resignation as Agent, the provisions of this Article shall inure to its
benefit as to any actions taken or omitted to be taken by it while it was Agent.
If no successor to the Agent has accepted  appointment as Agent by the thirtieth
(30th) day  following a retiring  Agent's  notice of  resignation,  the retiring
Agent's  resignation  shall  nevertheless  thereupon become  effective,  and the
Lenders shall  thereafter  perform all of the duties of the Agent  hereunder and
under the other  Credit  Documents  until such  time,  if any,  as the  Required
Lenders appoint a successor Agent as provided for hereinabove.

      10.10 Collateral Matters.  (a) The Agent is hereby authorized on behalf of
the Lenders,  without the necessity of any notice to or further consent from the
Lenders,  from time to time (but without any obligation) to take any action with
respect to the  Collateral  and the Security  Documents that may be necessary to
perfect and maintain perfected the Liens upon the Collateral granted pursuant to
the Security Documents.

      (b) The Lenders hereby irrevocably  authorize the Agent, at its option and
in its discretion,  to release any Lien granted to or held by the Agent upon any
Collateral (i) upon termination of the Commitments and payment in full of all of
the Obligations, (ii) constituting property sold or to be sold or disposed of as
part of or in connection  with any disposition  that may be expressly  permitted
hereunder or under any other Credit Document or (iii) otherwise  pursuant to and
in  accordance  with the  provisions of any  applicable  Credit  Document.  Upon
request by the Agent at any time,  the  Lenders  will  confirm  in  writing  the
Agent's authority to release Collateral pursuant to this subsection (b).

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<PAGE>


                                   ARTICLE XI

                                  MISCELLANEOUS

      11.1  Fees and  Expenses.  The  Borrower  agrees  (i)  whether  or not the
transactions  contemplated by this Agreement  shall be consummated,  to pay upon
demand all reasonable  out-of-pocket costs and expenses of the Agent (including,
without  limitation,  the reasonable  fees and expenses of counsel to the Agent,
including  local  counsel to the Agent in Alabama,  and  including the allocated
costs of internal  counsel,  but subject in any event to the  provisions  of the
commitment  letter from First Union to the Borrower  dated  November 5, 1998) in
connection  with  the   preparation,   negotiation,   execution,   delivery  and
syndication of this Agreement and the other Credit Documents, and any amendment,
modification  or waiver  hereof or  thereof or consent  with  respect  hereto or
thereto, (ii) to pay upon demand all reasonable out-of-pocket costs and expenses
of the Agent and each Lender (including, without limitation, the reasonable fees
and  expenses of counsel to the Agent or any  Lender,  including  the  allocated
costs of  internal  counsel) in  connection  with (y) after the  occurrence  and
during the continuance of an Event of Default,  any refinancing or restructuring
of the credit arrangement  provided under this Agreement,  whether in the nature
of a "work-out,"  in any  insolvency  or bankruptcy  proceeding or otherwise and
whether or not consummated,  and (z) the enforcement,  attempted  enforcement or
preservation  of any rights or remedies under this Agreement or any of the other
Credit  Documents,  whether in any action,  suit or  proceeding  (including  any
bankruptcy or  insolvency  proceeding)  or otherwise,  and (iii) to pay and hold
harmless  the Agent and each  Lender  from and  against  all  liability  for any
intangibles,  documentary,  stamp or other similar taxes,  fees and excises,  if
any,  including any interest and penalties,  and any finder's or brokerage fees,
commissions  and  expenses  (other  than any fees,  commissions  or  expenses of
finders or brokers  engaged by the Agent or any Lender),  that may be payable in
connection  with the  transactions  contemplated by this Agreement and the other
Credit  Documents  (other than any transfer,  stamp or similar taxes that may be
payable in  connection  with the  transfer of any Loans or Notes  pursuant to an
Assignment and Acceptance).

      11.2 Indemnification. The Borrower agrees, whether or not the transactions
contemplated  by this  Agreement  shall be  consummated,  to indemnify  and hold
harmless  the  Agent and each  Lender  and each of their  respective  directors,
officers,  employees, agents and Affiliates (each, an "Indemnified Person") from
and against  any and all  claims,  losses,  damages,  obligations,  liabilities,
penalties,  costs  and  expenses  (including,  without  limitation,   reasonable
attorneys' fees and expenses) of any kind or nature whatsoever,  whether direct,
indirect or consequential  (collectively,  "Indemnified Costs"), that may at any
time be imposed on, incurred by or asserted against any such Indemnified  Person
as a  result  of,  arising  from  or in any  way  relating  to the  preparation,
execution,  performance  or  enforcement  of this  Agreement or any of the other
Credit Documents, any of the transactions  contemplated herein or therein or any
transaction  financed  or to be  financed  in  whole  or in  part,  directly  or
indirectly,  with the proceeds of any Loans or Letters of Credit, or any action,
suit or  proceeding  (including  any  inquiry or  investigation)  by any Person,
whether  threatened or initiated,  related to any of the  foregoing,  and in any
case  whether  or not such  Indemnified  Person  is a party to any such  action,
proceeding or suit or a subject of any such inquiry or investigation;  provided,
however,  that no  Indemnified  Person  shall  have the right to be  indemnified
hereunder  for any  Indemnified  Costs to the  extent  resulting  from the gross
negligence  or  willful  misconduct  of  such  Indemnified  Person.  All  of the
foregoing  Indemnified  Costs  of  any  Indemnified  Person  shall  be  paid  or
reimbursed by the Borrower, as and when incurred and upon demand.

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      11.3 Governing Law; Consent to Jurisdiction.  THIS AGREEMENT AND THE OTHER
CREDIT  DOCUMENTS  HAVE BEEN  EXECUTED,  DELIVERED AND ACCEPTED IN, AND SHALL BE
DEEMED  TO HAVE BEEN  MADE IN,  NORTH  CAROLINA  AND  SHALL BE  GOVERNED  BY AND
CONSTRUED  AND  ENFORCED  IN  ACCORDANCE  WITH  THE  LAWS OF THE  STATE OF NORTH
CAROLINA (WITHOUT REGARD TO THE CONFLICTS OF LAW PROVISIONS  THEREOF);  PROVIDED
THAT EACH LETTER OF CREDIT  SHALL BE GOVERNED BY AND  CONSTRUED  AND ENFORCED IN
ACCORDANCE WITH THE LAWS OR RULES  DESIGNATED IN SUCH LETTER OF CREDIT OR, IF NO
SUCH LAWS OR RULES  ARE  DESIGNATED,  THE  UNIFORM  CUSTOMS  AND  PRACTICES  FOR
DOCUMENTARY CREDITS,  INTERNATIONAL  CHAMBER OF COMMERCE, AS IN EFFECT FROM TIME
TO TIME (THE "UNIFORM CUSTOMS"),  AND, AS TO MATTERS NOT GOVERNED BY THE UNIFORM
CUSTOMS,  THE  LAWS OF THE  STATE  OF  NORTH  CAROLINA  (WITHOUT  REGARD  TO THE
CONFLICTS  OF LAW  PROVISIONS  THEREOF).  THE  BORROWER  HEREBY  CONSENTS TO THE
NONEXCLUSIVE  JURISDICTION OF ANY STATE COURT WITHIN MECKLENBURG  COUNTY,  NORTH
CAROLINA OR ANY FEDERAL COURT LOCATED  WITHIN THE WESTERN  DISTRICT OF THE STATE
OF NORTH  CAROLINA FOR ANY PROCEEDING  INSTITUTED  HEREUNDER OR UNDER ANY OF THE
OTHER CREDIT  DOCUMENTS,  OR ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT
OR ANY OF THE OTHER CREDIT  DOCUMENTS,  OR ANY  PROCEEDING TO WHICH THE AGENT OR
ANY LENDER OR THE BORROWER IS A PARTY, INCLUDING ANY ACTIONS BASED UPON, ARISING
OUT OF, OR IN  CONNECTION  WITH,  ANY  COURSE  OF  CONDUCT,  COURSE OF  DEALING,
STATEMENT (WHETHER ORAL OR WRITTEN) OR ACTIONS OF THE AGENT OR ANY LENDER OR THE
BORROWER.  THE BORROWER IRREVOCABLY AGREES TO BE BOUND (SUBJECT TO ANY AVAILABLE
RIGHT OF APPEAL) BY ANY JUDGMENT  RENDERED OR RELIEF GRANTED THEREBY AND FURTHER
WAIVES ANY OBJECTION THAT IT MAY HAVE BASED ON LACK OF  JURISDICTION OR IMPROPER
VENUE OR FORUM  NON  CONVENIENS  TO THE  CONDUCT  OF ANY  SUCH  PROCEEDING.  THE
BORROWER CONSENTS THAT ALL SERVICE OF PROCESS BE MADE BY REGISTERED OR CERTIFIED
MAIL  DIRECTED TO IT AT ITS ADDRESS SET FORTH  HEREINBELOW,  AND SERVICE SO MADE
SHALL BE DEEMED TO BE COMPLETED  UPON THE EARLIER OF ACTUAL  RECEIPT  THEREOF OR
THREE (3) DAYS AFTER DEPOSIT IN THE UNITED STATES MAILS,  PROPER POSTAGE PREPAID
AND PROPERLY ADDRESSED.  NOTHING IN THIS SECTION SHALL AFFECT THE RIGHT TO SERVE
LEGAL  PROCESS IN ANY OTHER  MANNER  PERMITTED BY LAW OR AFFECT THE RIGHT OF ANY
PARTY TO BRING ANY ACTION OR PROCEEDING AGAINST ANY OTHER PARTY IN THE COURTS OF
ANY OTHER JURISDICTION.

      The  parties  hereto  agree  that  this  Agreement  and the  other  Credit
Documents  have been and will be made and entered into within the State of North
Carolina and that the Loans and the other transactions  contemplated  hereby and
thereby  have  been  and  will be made  and  consummated  in the  State of North


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Carolina.  Furthermore,  the  parties  hereto  believe  that,  inasmuch  as this
Agreement and the transactions contemplated hereby have been and will be entered
into and consummated outside the State of Alabama, such transactions  constitute
transactions in interstate commerce, so that neither the Agent nor any Lender is
or will be required, solely by entering into this Agreement and consummating the
transactions contemplated hereby and holding any Note, to qualify to do business
as a foreign  corporation  within  the  State of  Alabama.  Notwithstanding  the
foregoing,  however,  the Borrower hereby  irrevocably waives all rights that it
may have to raise,  in any action  brought by the Agent or any Lender to enforce
its  rights  hereunder,  under  the  Notes  or  under  any of the  other  Credit
Documents, any defense that is based upon the failure of the Agent or any Lender
to qualify to do  business  as a foreign  corporation  in the State of  Alabama,
including,  but not limited to, any  defenses  based upon ss. 232 of the Alabama
Constitution  of 1901,  ss.  10-2B-15.02  of the Code of  Alabama  (1975) or ss.
40-14-4 of the Code of Alabama (1975), or any successor  provisions thereof. The
foregoing waiver is made knowingly and voluntarily and is a material  inducement
for the Agent and the Lenders to enter into this Agreement and to consummate the
transactions contemplated hereby.

      11.4 Arbitration; Preservation and Limitation of Remedies. (a) Upon demand
of any party hereto,  whether made before or after  institution  of any judicial
proceeding,  any dispute, claim or controversy arising out of, connected with or
relating to this Agreement or any other Credit Document  ("Disputes") between or
among the Borrower, its Subsidiaries, the Agent and the Lenders, or any of them,
shall be resolved by binding  arbitration as provided  herein.  Institution of a
judicial  proceeding by a party does not waive the right of that party to demand
arbitration hereunder.  Disputes may include,  without limitation,  tort claims,
counterclaims,  claims brought as class  actions,  claims arising from documents
executed  in  the  future,  disputes  as to  whether  a  matter  is  subject  to
arbitration,  or  claims  arising  out of or  connected  with  the  transactions
contemplated by this Agreement and the other Credit Documents. Arbitration shall
be conducted under and governed by the Commercial Financial Disputes Arbitration
Rules (the  "Arbitration  Rules") of the American  Arbitration  Association (the
"AAA"), as in effect from time to time, and the Federal Arbitration Act, Title 9
of the U.S. Code, as amended. All arbitration hearings shall be conducted in the
city in which the  principal  office of the Agent is  located.  A hearing  shall
begin within ninety (90) days of demand for  arbitration  and all hearings shall
be concluded within 120 days of demand for  arbitration.  These time limitations
may not be extended  unless a party shows  cause for  extension  and then for no
more than a total of sixty (60) days. The expedited procedures set forth in Rule
51 et seq. of the  Arbitration  Rules shall be applicable to claims of less than
$1,000,000.  All applicable statutes of limitation shall apply to any Dispute. A
judgment  upon the award may be entered in any court  having  jurisdiction.  The
panel from which all  arbitrators  are  selected  shall be comprised of licensed
attorneys  selected from the Commercial  Financial Dispute  Arbitration Panel of
the AAA. The single  arbitrator  selected  for  expedited  procedure  shall be a
retired judge from the highest court of general jurisdiction,  state or federal,
of the state where the hearing will be conducted. Notwithstanding the foregoing,
this  arbitration  provision  does not apply to Disputes under or related to any
Hedge  Agreement.   The  parties  do  not  waive  applicable  federal  or  state
substantive law except as provided herein.

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<PAGE>

      (b)  Notwithstanding  the preceding binding  arbitration  provisions,  the
parties hereto agree to preserve, without diminution,  certain remedies that any
party hereto may employ or exercise freely, either alone, in conjunction with or
during a Dispute.  Any party hereto 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 Collateral by
exercising  a power of sale granted  pursuant to any of the Credit  Documents or
under applicable law or by judicial foreclosure and sale, including a proceeding
to confirm the sale; (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,  appointment of a
receiver  and  filing  an  involuntary  bankruptcy  proceeding;  and  (iv)  when
applicable,  a judgment by confession of judgment. Any claim or controversy with
regard to any party's entitlement to such remedies is a Dispute. 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. The parties hereto agree
that no party shall have a remedy of punitive or exemplary  damages  against any
other party in any Dispute,  and each party hereby  waives any right or claim to
punitive or exemplary damages that it has now or that may arise in the future in
connection with any Dispute,  whether such Dispute is resolved by arbitration or
judicially. The parties acknowledge that by agreeing to binding arbitration they
have irrevocably waived any right they may have to a jury trial with regard to a
Dispute.

      11.5 Notices. All notices and other communications  provided for hereunder
shall be in writing (including  telegraphic,  telex,  facsimile  transmission or
cable communication) and mailed,  telegraphed,  telexed,  telecopied,  cabled or
delivered to the party to be notified at the following addresses:

      (a) if to the  Borrower,  to Movie  Gallery,  Inc.,  739 West Main Street,
Dothan,  Alabama 36301,  Attention:  J. Steven Roy, Telecopy No. (334) 677-2140,
with a copy to Movie Gallery, Inc., 739 West Main Street, Dothan, Alabama 36301,
Attention: S. Page Todd, Telecopy No. (334) 702-0509;

      (b) if to the Agent, to First Union National Bank of North  Carolina,  One
First Union Center,  DC-4, 301 South College Street,  Charlotte,  North Carolina
28288-0680, Attention: Syndication Agency Services, Telecopy No. (704) 383-0288;
and

      (c) if to any  Lender,  to it at the  address for notices set forth on its
signature  page  hereto (or if to any  Lender not a party  hereto as of the date
hereof, at the address for notices set forth in its Assignment and Acceptance);

or in each case,  to such other address as any party may designate for itself by
like notice to all other  parties  hereto.  All such notices and  communications
shall be deemed to have been given (i) if mailed as provided above by any method
other than overnight  delivery service,  on the third Business Day after deposit
in the  mails,  (ii) if  mailed  by  overnight  delivery  service,  telegraphed,
telexed, telecopied or cabled, when delivered for overnight delivery,  delivered
to  the  telegraph  company,  confirmed  by  telex  answerback,  transmitted  by
telecopier  or  delivered  to the  cable  company,  respectively,  or  (iii)  if
delivered by hand, upon delivery;  provided that notices and  communications  to
the Agent shall not be effective until received by the Agent.

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      11.6  Amendments,  Waivers,  etc. No  amendment,  modification,  waiver or
discharge or  termination  of, or consent to any departure by the Borrower from,
any provision of this Agreement or any other Credit Document, shall be effective
unless  in a  writing  signed by the  Required  Lenders  (or by the Agent at the
direction or with the consent of the Required Lenders),  and then the same shall
be  effective  only in the specific  instance  and for the specific  purpose for
which given; provided,  however, that no such amendment,  modification,  waiver,
discharge, termination or consent shall:

      (a) unless agreed to by each Lender holding or owed  Obligations  directly
affected  thereby,  (i) reduce or forgive  the  principal  amount of, or rate of
interest on, any Loan, or reduce or forgive any fees or other Obligations (other
than fees  payable to the Agent for its own  account),  or (ii)  extend any date
(including  the  Maturity  Date)  fixed for the payment of any  principal  of or
interest on any Loan (other  than  additional  interest  payable  under  Section
2.7(b) during the continuance of an Event of Default), any fees (other than fees
payable to the Agent for its own account) or any other Obligations;

      (b) unless  agreed to by all of the  Lenders,  (i)  increase or extend the
Commitment of any Lender other than pursuant to Section 2.15,  provided that the
consent of a Lender shall be required for the increase of its own Commitment (it
being  understood  that a waiver  of any Event of  Default,  if agreed to by the
requisite  Lenders   hereunder,   shall  not  constitute  such  an  increase  or
extension),  (ii) change the percentage of the Commitments, or the percentage of
the aggregate  unpaid principal amount of the Loans, or the number or percentage
of  Lenders,  that shall be  required  for the Lenders or any of them to take or
approve, or direct the Agent to take or approve, any action hereunder (including
as set forth in the  definition of "Required  Lenders"),  (iii) except as may be
otherwise  specifically  provided  in  this  Agreement  or in any  other  Credit
Document, release all or substantially all of the Collateral, or (iv) change any
provision of Section 2.14 or this Section 11.6; and

      (c) unless agreed to by the Issuing  Lender,  the Swingline  Lender or the
Agent in addition to the Lenders  required as provided  hereinabove to take such
action,  affect the respective rights or obligations of the Issuing Lender,  the
Swingline  Lender or the Agent,  as  applicable,  hereunder  or under any of the
other Credit Documents;

and provided  further  that the Fee Letter may be amended or  modified,  and any
rights thereunder waived, in a writing signed by the parties thereto.

      11.7  Assignments,  Participations.  (a) Each  Lender may assign to one or
more other Eligible  Assignees  (each,  an  "Assignee")  all or a portion of its
rights and obligations under this Agreement (including,  without limitation, all
or a portion of its Commitment,  the  outstanding  Loans made by it, the Note or
Notes  held  by it and its  participations  in  Letters  of  Credit);  provided,
however,  that (i) any such assignment  (other than an assignment to a Lender or
an Affiliate of a Lender) shall not be made without the prior written consent of
the  Agent,  the  Issuing  Lender and the  Borrower  (to be  evidenced  by their
counterexecution of the relevant Assignment and Acceptance), which consent shall
not be  unreasonably  withheld,  (ii) each such  assignment by a Lender shall be
made in such manner so that the same portion of its Commitment,  Loans,  Note or
Notes and  participations  in  Letters  of Credit is  assigned  to the  relevant
Assignee  (provided that the Swingline  Lender may assign all (but not less than


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all) of the Swingline  Commitment,  the Swingline  Loans and the Swingline  Note
without the necessity of assigning a  corresponding  portion of its  Commitment,
Revolving  Loans and  Revolving  Credit  Note),  (iii)  except in the case of an
assignment to a Lender or an Affiliate of a Lender, the amount of the Commitment
of the  assigning  Lender  being  assigned  pursuant  to  each  such  assignment
(determined as of the date of the Assignment and Acceptance with respect to each
such  assignment)  shall in no event be less than the  lesser of (y) the  entire
Commitment  of  such  Lender   immediately  prior  to  such  assignment  or  (z)
$5,000,000, and, in the case of the Swingline Lender, shall not be less than the
entire Swingline  Commitment,  and (iv) the parties to each such assignment will
execute  and  deliver to the Agent,  for its  acceptance  and  recording  in the
Register, an Assignment and Acceptance,  together with any Note or Notes subject
to such assignment, and will pay a nonrefundable processing fee of $3,000 to the
Agent  for its own  account.  Upon  such  execution,  delivery,  acceptance  and
recording of the  Assignment and  Acceptance,  from and after the effective date
specified  therein,  which  effective  date shall be at least five Business Days
after the execution  thereof (unless the Agent shall otherwise  agree),  (A) the
Assignee  thereunder  shall be a party hereto and, to the extent that rights and
obligations  hereunder have been assigned to it pursuant to such  Assignment and
Acceptance,  shall have the  rights  and  obligations  of the  assigning  Lender
hereunder with respect thereto and (B) the assigning Lender shall, to the extent
that rights and obligations  hereunder have been assigned by it pursuant to such
Assignment  and  Acceptance,  relinquish its rights (other than rights under the
provisions  of this  Agreement  and  the  other  Credit  Documents  relating  to
indemnification  or  payment of fees,  costs and  expenses,  to the extent  such
rights relate to the time prior to the  effective  date of such  Assignment  and
Acceptance) and be released from its  obligations  under this Agreement (and, in
the case of an Assignment and Acceptance  covering all or the remaining  portion
of such assigning  Lender's  rights and obligations  under this Agreement,  such
Lender  shall  cease to be a party  hereto).  The terms and  provisions  of each
Assignment and Acceptance shall, upon the effectiveness thereof, be incorporated
into  and  made a part of this  Agreement,  and the  covenants,  agreements  and
obligations of each Lender set forth therein shall be deemed made to and for the
benefit  of the  Agent and the  other  parties  hereto as if set forth at length
herein.

      (b) The Agent will maintain at its address for notices  referred to herein
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
Commitments  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  Agreement.  The Register  shall be
available for inspection by the Borrower and each Lender at any reasonable  time
and from time to time upon reasonable prior notice.

      (c)  Upon  its  receipt  of a duly  completed  Assignment  and  Acceptance
executed by an  assigning  Lender and an  Assignee  and  counterexecuted  by the
Borrower (if required) and the Issuing  Lender,  together with any Note or Notes
subject to such  assignment and the processing fee referred to in subsection (a)
above,  the Agent will (i) accept such  Assignment and  Acceptance,  (ii) on the
effective date thereof, record the information contained therein in the Register
and (iii) give notice  thereof to the Borrower and the Lenders.  Within five (5)
Business  Days after its receipt of such notice,  the Borrower  will execute and
deliver to the Agent in exchange for the surrendered Note or Notes a new Note or


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Notes to the order of such  Assignee in an aggregate  principal  amount equal to
the  principal  amount  of the  Commitment  (or,  if the  Commitments  have been
terminated,  the principal  amount of the Loans)  assumed by it pursuant to such
Assignment and Acceptance  and, to the extent the assigning  Lender has retained
its Loans and/or Commitment  hereunder,  a new Note or Notes to the order of the
assigning Lender in an aggregate  principal amount equal to the principal amount
of the Commitment (or, if the Commitments  have been  terminated,  the principal
amount of the Loans)  retained by it hereunder.  Such new Note or Notes shall be
dated  the  date of the  replaced  Note  or  Notes  and  shall  otherwise  be in
substantially  the form of Exhibit A-1 or Exhibit A-2, as applicable.  The Agent
will return cancelled Notes to the Borrower.

      (d) Each Lender may, without the consent of the Borrower, the Agent or any
other  Lender,  sell  to one or  more  other  Persons  (each,  a  "Participant")
participations  in any  portion  comprising  less  than  all of its  rights  and
obligations under this Agreement  (including,  without limitation,  a portion of
its Commitment,  the outstanding  Loans made by it, the Note or Notes held by it
and its participations in Letters of Credit);  provided,  however, that (i) such
Lender's obligations under this Agreement shall remain unchanged and such Lender
shall remain solely responsible for the performance of such obligations, (ii) no
Lender shall sell any  participation  that,  when taken  together with all other
participations,  if any, sold by such Lender, covers all of such Lender's rights
and  obligations  under this  Agreement,  (iii) the Borrower,  the Agent and the
other  Lenders  shall  continue to deal solely and directly  with such Lender in
connection with such Lender's rights and obligations  under this Agreement,  and
no Lender shall permit any Participant to have any voting rights or any right to
control  the vote of such Lender with  respect to any  amendment,  modification,
waiver,  consent or other action  hereunder  or under any other Credit  Document
(except as to actions that would (x) reduce or forgive the principal  amount of,
or rate of  interest  on,  any  Loan,  or reduce  or  forgive  any fees or other
Obligations,  (y) extend any date  (including  the Maturity  Date) fixed for the
payment  of any  principal  of or  interest  on any Loan,  any fees or any other
Obligations,  or (z)  increase  any  Commitment  of any  Lender),  and  (iv)  no
Participant  shall have any  rights  under  this  Agreement  or any of the other
Credit  Documents,  each  Participant's  rights  against the granting  Lender in
respect  of any  participation  to be  those  set  forth  in  the  participation
agreement, and all amounts payable by the Borrower hereunder shall be determined
as if such  Lender  had not  granted  such  participation.  Notwithstanding  the
foregoing,  each  Participant  shall have the rights of a Lender for purposes of
Sections  2.16(a),  2.16(b),  2.17,  2.18 and 9.3,  and shall be entitled to the
benefits  thereto,  to the extent that the Lender  granting  such  participation
would be  entitled  to such  benefits  if the  participation  had not been made,
provided  that no  Participant  shall be entitled to receive any greater  amount
pursuant to any of such  Sections than the Lender  granting  such  participation
would  have  been   entitled  to  receive  in  respect  of  the  amount  of  the
participation made by such Lender to such Participant had such participation not
been made.

      (e) Nothing in this  Agreement  shall be  construed to prohibit any Lender
from  pledging  or  assigning  all or any  portion of its  rights  and  interest
hereunder  or  under  any  Note to any  Federal  Reserve  Bank as  security  for
borrowings therefrom; provided, however, that no such pledge or assignment shall
release a Lender from any of its obligations hereunder.

      (f) Any Lender may, in connection with any assignment or  participation or
proposed assignment or participation  pursuant to this Section,  disclose to the
Assignee or Participant  or proposed  Assignee or  Participant  any  information
relating to the Borrower and its Subsidiaries furnished to it by or on behalf of


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any other party hereto,  provided that such Assignee or  Participant or proposed
Assignee or Participant agrees in writing to keep such information  confidential
to the same extent required of the Lenders under Section 11.13.

      (g) As used in this Section 11.7, the terms "Commitments" and "Commitment"
shall include the Swingline Commitment in the case of the Swingline Lender.

      11.8 No  Waiver.  The  rights and  remedies  of the Agent and the  Lenders
expressly  set  forth in this  Agreement  and the  other  Credit  Documents  are
cumulative  and in  addition  to, and not  exclusive  of,  all other  rights and
remedies  available at law, in equity or  otherwise.  No failure or delay on the
part of the Agent or any  Lender in  exercising  any right,  power or  privilege
shall operate as a waiver thereof,  nor shall any single or partial  exercise of
any such  right,  power or  privilege  preclude  any other or  further  exercise
thereof or the exercise of any other  right,  power or privilege or be construed
to be a waiver of any Default or Event of Default.  No course of dealing between
any of the  Borrower  and the Agent or the Lenders or their  agents or employees
shall be effective to amend, modify or discharge any provision of this Agreement
or any other Credit  Document or to  constitute a waiver of any Default or Event
of Default.  No notice to or demand upon the Borrower in any case shall  entitle
the  Borrower  to any other or  further  notice or  demand in  similar  or other
circumstances  or constitute a waiver of the right of the Agent or any Lender to
exercise  any  right or  remedy  or take  any  other or  further  action  in any
circumstances without notice or demand.

      11.9 Successors and Assigns.  This Agreement shall be binding upon,  inure
to the benefit of and be enforceable by the respective successors and assigns of
the parties  hereto,  and all references  herein to any party shall be deemed to
include its successors  and assigns;  provided,  however,  that (i) the Borrower
shall not sell,  assign or  transfer  any of its  rights,  interests,  duties or
obligations  under this Agreement or any other Credit Document without the prior
written  consent of all of the  Lenders and (ii) any  Assignees  shall have such
rights and  obligations  with  respect to this  Agreement  and the other  Credit
Documents as are provided  for under and pursuant to the  provisions  of Section
11.7.

      11.10 Survival. All representations,  warranties and agreements made by or
on behalf of the Borrower or any of its  Subsidiaries  in this  Agreement and in
the other Credit  Documents  shall survive the execution and delivery  hereof or
thereof, the making and repayment of the Loans and the issuance and repayment of
the Letters of Credit.  In addition,  notwithstanding  anything  herein or under
applicable  law to the contrary,  the provisions of this Agreement and the other
Credit  Documents  relating  to  indemnification  or payment of fees,  costs and
expenses,  including,  without  limitation,  the provisions of Sections 2.16(a),
2.16(b),  2.17,  2.18, 10.7, 11.1 and 11.2, shall survive the payment in full of
all Loans and Letters of Credit,  the  termination  of the  Commitments  and all
Letters of Credit,  and any  termination  of this  Agreement or any of the other
Credit Documents.

      11.11  Severability.  To the extent any  provision  of this  Agreement  is
prohibited  by or invalid under the  applicable  law of any  jurisdiction,  such
provision  shall  be  ineffective  only to the  extent  of such  prohibition  or
invalidity and only in such  jurisdiction,  without  prohibiting or invalidating
such  provision in any other  jurisdiction  or the remaining  provisions of this
Agreement in any jurisdiction.

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      11.12  Construction.  The headings of the various  articles,  sections and
subsections of this Agreement have been inserted for convenience  only and shall
not in any way  affect  the  meaning or  construction  of any of the  provisions
hereof.  Except as otherwise  expressly  provided herein and in the other Credit
Documents,  in the event of any  inconsistency or conflict between any provision
of this  Agreement and any provision of any of the other Credit  Documents,  the
provision of this Agreement shall control.

      11.13 Confidentiality.  Each Lender agrees to keep confidential,  pursuant
to its customary procedures for handling  confidential  information of a similar
nature and in accordance  with safe and sound banking  practices,  all nonpublic
information  provided  to it by or on  behalf  of  the  Borrower  or  any of its
Subsidiaries  in connection  with this  Agreement or any other Credit  Document;
provided,  however,  that any Lender may disclose  such  information  (i) to its
directors,  employees  and  agents  and  to  its  auditors,  counsel  and  other
professional  advisors,  (ii) at the demand or  request  of any bank  regulatory
authority,   court  or  other   Governmental   Authority   having  or  asserting
jurisdiction  over such Lender, as may be required pursuant to subpoena or other
legal process,  or otherwise in order to comply with any applicable  Requirement
of Law, (iii) in connection with any proceeding to enforce its rights  hereunder
or under any other Credit Document or any other litigation or proceeding related
hereto or to which it is a party, (iv) to the Agent or any other Lender,  (v) to
the extent the same has become  publicly  available  other than as a result of a
breach  of this  Agreement  and  (vi)  pursuant  to and in  accordance  with the
provisions of Section 11.7(f).

      11.14  Counterparts.  This  Agreement  may be  executed  in any  number of
counterparts and by different parties hereto on separate  counterparts,  each of
which when so executed  and  delivered  shall be an  original,  but all of which
shall together  constitute  one and the same  instrument.  This Agreement  shall
become  effective  upon the  execution  of a  counterpart  hereof by each of the
parties  hereto  and  receipt  by the  Agent  and the  Borrower  of  written  or
telephonic notification of such execution and authorization of delivery thereof.

      11.15  Entire  Agreement.  THIS  AGREEMENT  AND THE  OTHER  DOCUMENTS  AND
INSTRUMENTS  EXECUTED AND DELIVERED IN CONNECTION HEREWITH (A) EMBODY THE ENTIRE
AGREEMENT AND  UNDERSTANDING  BETWEEN THE PARTIES HERETO AND THERETO RELATING TO
THE  SUBJECT  MATTER  HEREOF  AND  THEREOF,  (B)  SUPERSEDE  ANY AND  ALL  PRIOR
AGREEMENTS AND UNDERSTANDINGS OF SUCH PERSONS, ORAL OR WRITTEN,  RELATING TO THE
SUBJECT MATTER HEREOF AND THEREOF,  INCLUDING THE  COMMITMENT  LETTER FROM FIRST
UNION TO THE BORROWER DATED NOVEMBER 5, 1998 (EXCEPT AS  SPECIFICALLY  OTHERWISE
PROVIDED  THEREIN AS TO CERTAIN  PROVISIONS  THAT SHALL SURVIVE THE EXECUTION OF
THIS AGREEMENT),  BUT SPECIFICALLY  EXCLUDING THE FEE LETTER, AND (C) MAY NOT BE
AMENDED, SUPPLEMENTED,  CONTRADICTED OR OTHERWISE MODIFIED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.


                                       83
<PAGE>



 

               IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be  executed  by their duly  authorized  officers  as of the date first above
written.



                                     MOVIE GALLERY, INC.


                                     By:    /s/ J. Steven Roy
                                            -----------------------
                                     Title: Chief Financial Officer
                                            -----------------------

































                             (signatures continued)

                                       S-1


<PAGE>



                                   FIRST UNION NATIONAL BANK, as Agent, as
                                   Issuing Lender, as Swingline Lender and as a
                                   Lender





Commitment:                        By:    /s/ David B. Kraybill
$25,000,000                               ------------------------
                                   Title: Assistant Vice President
                                          ------------------------


                                   Instructions for wire transfers to the Agent:

                                   First Union National Bank
                                   ABA Routing No. 053000219
                                   Charlotte, North Carolina
                                   Account Number: 5000000009116
                                   Account Name: Movie Gallery, Inc.
                                   Attention:  Syndication Agency Services



                                   Address for notices  (as Issuing  Lender,  as
                                   Swingline Lender and as a Lender):

                                   First Union National Bank
                                   One First Union Center, 5th Floor
                                   301 South College Street
                                   Charlotte, North Carolina 28288-0735
                                   Attention:  Stephen Smith
                                   Telephone:  (704) 383-5138
                                   Telecopy:  (704) 374-4092

                                   Lending Office:

                                   First Union National Bank
                                   One First Union Center, 5th Floor
                                   301 South College Street
                                   Charlotte, North Carolina 28288-0735
                                   Attention:  Stephen Smith
                                   Telephone:  (704) 383-5138
                                   Telecopy:  (704) 374-4092





                             (signatures continued)


                                      S-2

<PAGE>





                                   MERCANTILE BANK OF ST. LOUIS,
                                   NATIONAL ASSOCIATION


                                   By:    /s/ Timothy W. Hassler
Commitment:                               ----------------------
$20,000,000                        Title: Vice President
                                          ----------------------

                                   Address for notices and Lending Office:


                                   Mercantile Bank of St. Louis
                                   721 Locus Street, Tram 12-3
                                   St. Louis, Missouri  63101
                                   Attention: Tim Hassler
                                   Telephone: (314) 418-8046
                                   Telecopy: (314) 418-2203


                             (signatures continued)


                                      S-3
<PAGE>



                                   SOUTHTRUST BANK, NATIONAL ASSOCIATION


                                   By:     /s/ W. Spencer Ragland
Commitment:                                ----------------------
$20,000,000                        Title:  Vice President
                                           ----------------------

                                   Address for notices:

                                   420 North 20th Street
                                   11th Floor
                                   Birmingham, AL  35203
                                   Attention: Spencer Ragland
                                   Telephone: (205) 254-4521
                                   Telecopy: (205) 254-5022

                                   Lending Office:

                                   Commercial Loan Operations
                                   6434 1st Avenue North
                                   Birmingham, AL  35212
                                   Attention: Tracy Crawford
                                   Telephone: (205) 599-5446
                                   Telecopy: (205) 599-4350


                                      S-4