THIRD RESTATED AND AMENDED
                     REVOLVING CREDIT AND SECURITY AGREEMENT


                                      AMONG

                          BANK BOSTON, N.A. (F/K/A THE
                         FIRST NATIONAL BANK OF BOSTON),

                       IBJ SCHRODER BANK & TRUST COMPANY,

                       SANWA BUSINESS CREDIT CORPORATION,

                          LASALLE BUSINESS CREDIT, INC.

                      BANK LEUMI TRUST COMPANY OF NEW YORK,

                     THE DIME SAVINGS BANK OF NEW YORK, FSB

                      THE FIRST NATIONAL BANK OF MARYLAND,

                          KEY CORPORATE CAPITAL, INC.,

                        ALLOU HEALTH & BEAUTY CARE, INC.

                                       AND

                            ALLOU DISTRIBUTORS, INC.




                             Dated: October 22, 1997



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                                TABLE OF CONTENTS
                                -----------------


SECTION     1.        DEFINITIONS,

SECTION     2.        BORROWER'S LOAN ACCOUNT; REVOLVING LOANS.

            2.1       Loans
            2.2       Loan Account
            2.3       Payment
            2.4       Letters of Credit
            2.5       Interest on Revolving Loans
            2.6       Eurodollar Interest Rate Option
            2.7       Overadvances
            2.8       Fees

SECTION     3.        REPRESENTATIONS AND WARRANTIES

            3.1       Organization and Qualification
            3.2       Corporate Authority
            3.3       Valid Obligations
            3.4       Approvals
            3.5       Title to Properties; Absence of Liens
            3.6       Compliance
            3.7       Financial Statements
            3.8       Solvency
            3.9       Events of Default
            3.10      Taxes
            3.11      Litigation
            3.12      Margin Rules
            3.13      Restrictions on the Borrowers
            3.14      ERISA
            3.15      Intellectual Property; Tradenames
            3.16      Environmental and Regulatory Compliance
            3.17      Employment Contracts

SECTION     4.        CONDITIONS OF LOANS

            4.1       Conditions of Initial Loans
            4.2       Conditions to all Revolving Loans
            4.3       Conditions to Restatement and Amendment
            4.4       Heter Iska


                                       (i)

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SECTION     5.        COVENANTS.

            5.1       Financial Reporting
            5.2       Conduct of Business
            5.3       Maintenance and Insurance
            5.4       Taxes
            5.5       Limitation of Indebtedness
            5.6       Guaranties
            5.7       Restrictions on Liens
            5.8       Merger, Acquisitions and Purchase and Sale of Assets
            5.9       Investments and Loans
            5.10      Capital Expenditures
            5.11      Sale of Notes
            5.12      Dividends, etc.
            5.13      ERISA Compliance
            5.14      Pension Plans
            5.15      Notification of Default
            5.16      Notification of Material Litigation
            5.17      Notification of Material Adverse Change
            5.18      Inspection by the Agent
            5.19      Maintenance of Books and Records
            5.20      Use of Proceeds
            5.21      Transactions with Affiliates
            5.22      Environmental Regulations
            5.23      Fiscal Year
            5.24      Loss or Depreciation of Collateral
            5.25      Consolidated Tangible Net Worth
            5.26      Interest Coverage
            5.27      Leverage
            5.28      Joint and Several Liability
            5.29      Interest Rate Protection

SECTION     6         SECURITY.

            6.1       Security Interest
            6.2       No Other Liens
            6.3       Location of Records and Collateral
            6.4       Status of Collateral
            6.5       Name Change
            6.6       Collection of Accounts Receivable

SECTION     7.        EVENTS OF DEFAULT; ACCELERATION


                                      (ii)

<PAGE>



SECTION     8.        SET OFF; PARTICIPATIONS

SECTION     9.        CONCERNING THE AGENT AND THE BANKS

            9.1       Appointment and Authorization
            9.2       Agent and Affiliates
            9.3       Future Advances
            9.4       Payments
            9.5       Interest, Fees and Other Payments
            9.6       Action by Agent
            9.7       Consultation with Experts
            9.8       Liability of Agent
            9.9       Indemnification
            9.10      Independent Credit Decision
            9.11      Consents of All Lenders
            9.12      Successor Agent
            9.13      Agent's Minimum Revolving Credit Commitment

SECTION     10.       MISCELLANEOUS

            10.1      Written Notices
            10.2      Term of Agreement
            10.3      No Waivers
            10.4      Further Assurances
            10.5      Governing Law
            10.6      Payments in Immediately Available Funds
            10.7      Expenses, Taxes and Indemnification
            10.8      Amendments, Waivers, Etc.
            10.9      Binding Effect of Agreement
            10.10     Computation of Interest and Fees
            10.11     Entire Agreement
            10.12     Waiver of Jury Trial
            10.13     Captions
            10.14     Counterparts
            10.15     Severability

EXHIBIT A             Third Restated and Amended Revolving Credit Note

EXHIBIT B             Disclosure Schedule

EXHIBIT C             Existing Indebtedness

EXHIBIT D             Third Restated and Amended Closing Certificate


                                      (iii)

<PAGE>



EXHIBIT E             Certificate of Chief Financial Officer



                                       (iv)

<PAGE>



                           THIRD RESTATED AND AMENDED
                     REVOLVING CREDIT AND SECURITY AGREEMENT


           THIS  THIRD  RESTATED  AND  AMENDED  REVOLVING  CREDIT  AND  SECURITY
AGREEMENT is made as of October 22, 1997, among ALLOU HEALTH & BEAUTY CARE, INC.
(the "Parent"),  a Delaware  corporation  having its principal place of business
and a chief executive office at 50 Emjay Boulevard,  Brentwood,  New York 11717;
ALLOU  DISTRIBUTORS,  INC.  ("Distributors"),  a New York corporation having its
principal  place of business and chief executive  office at 50 Emjay  Boulevard,
Brentwood,  New York 11717;  BANKBOSTON,  N.A. (F/K/A THE FIRST NATIONAL BANK OF
BOSTON)  ("BKB"),  a national  bank with its head office at 100 Federal  Street,
Boston,  Massachusetts  02110; IBJ SCHRODER BANK & TRUST COMPANY  ("IBJS"),  One
State Street, Attention: Middle Market Division, New York, New York 10004; SANWA
BUSINESS CREDIT  CORPORATION  ("SBC"),  500 Glenpointe  Center W.,  Teaneck,  NJ
07666;  LASALLE BUSINESS CREDIT,  INC. ("LBC"),  477 Madison Avenue, 20th Floor,
New York,  New York,  10022;  BANK LEUMI TRUST COMPANY OF NEW YORK ("BLT"),  562
Fifth Avenue,  New York,  New York,  10036;  THE FIRST NATIONAL BANK OF MARYLAND
("FNBMD"),  25 South Charles Street,  Baltimore, MD 21201; THE DIME SAVINGS BANK
OF NEW YORK, FSB ("DSB"), 1180 Avenue of the Americas, Fifth Floor, New York, NY
10036; KEY CORPORATE  CAPITAL,  INC.  ("KCC");  and BKB as agent for the Lenders
(the  "Agent").   The  Parent  and  Distributors   are  hereafter   referred  to
individually as a "Borrower" and collectively (also with Subsidiaries  executing
and  delivering  the  Subsidiary  Tie-In  Agreement  from  time to  time) as the
"Borrowers".  BKB, IBJS, SBC, BLT, FNBMD, DSB and KCC are hereafter  referred to
collectively as the "Lenders".

           Reference is made to the following facts:

           A. The Borrowers and certain of the Lenders have previously  executed
and  delivered  that  certain  Revolving  Credit and Security  Agreement,  dated
December 10, 1991 (the  "Original Loan  Agreement"),  as amended and restated by
that  certain  Second  Restated  and  Amended   Revolving  Credit  and  Security
Agreement,  dated as of June 6, 1996,  as further  amended as of June 28,  1996,
October 15, 1996,  December 6, 1996,  February 14, 1997, May, 1997, July 1, 1997
and August 14, 1997 (as so amended, the "Prior Loan Agreement");

           B. The  Borrowers  have  requested  that the Prior Loan  Agreement be
further  amended to increase the Maximum Amount  hereunder to  $145,000,000,  to
reflect the  inclusion of FNBMD,  DSB and KCC among the  Lenders,  to extend the
Maturity Date, and to make certain other changes; and

           C.  The  Borrowers  and the  Lenders  have  deemed  it  advisable  to
consolidate  all of the prior  amendments to the Prior Loan  Agreement,  and the
amendments  to be effected  hereby,  by  restating  and  amending the Prior Loan
Agreement as set forth in this Third


<PAGE>



Restated and Amended Revolving Credit and Security  Agreement  (hereinafter,  as
previously  amended,  and as  amended  hereby,  the  "Loan  Agreement"  or  this
"Agreement").


           SECTION 1.  DEFINITIONS.  As used herein,  the following  terms shall
have the following meanings:

           1.1 "Account" and "Account  Receivable" include all rights to payment
for goods sold or leased or for  services  rendered,  all sums of money or other
proceeds due or becoming due thereon,  all instruments  pertaining thereto,  all
guaranties  and  security  therefor,  and all goods  giving rise thereto and the
rights pertaining to such goods, including the right of stoppage in transit, and
all related insurance.

           1.2  "Affiliate"  means,  with  reference  to  any  Person,  (i)  any
director, officer or employee of that Person, (ii) any other Person controlling,
controlled by or under direct or indirect  common control of that Person,  (iii)
any other Person  directly or indirectly  holding 5% or more of any class of the
capital  stock  or  other  equity  interests   (including   options,   warrants,
convertible  securities  and  similar  rights) of that Person and (iv) any other
Person 5% or more of any class of whose capital stock or other equity  interests
(including options, warrants, convertible securities and similar rights) is held
directly or indirectly by that Person.  For purposes of Sections 3.14,  5.13 and
5.14 hereof,  "Affiliate" shall mean, within the meaning of Section 414(b), (c),
(m) or (o) of the Code,  (i) any member of a  controlled  group of  corporations
which includes any of the Borrowers, (ii) any trade or business,  whether or not
incorporated,  under common control with any of the Borrowers,  (iii) any member
of an affiliated service group which includes any of the Borrowers, and (iv) any
member of a group including any of the Borrowers treated as a single employer by
regulation.

           1.3  "Agent"  shall mean BKB acting in the  capacity of agent for the
Lenders  under this  Agreement,  and includes  (where the context so admits) any
other Person or Persons succeeding to the functions of the Agent hereunder.

           1.4 "Base Accounts" shall mean the aggregate  Accounts  Receivable of
the Borrowers as to which the Agent has a perfected  first security  interest as
agent for and on behalf of the Lenders and the Borrowers  have  furnished to the
Agent information as required by Section 5.1 (viii) and (ix). If and when a Base
Account  exists  by virtue  of  constituting  proceeds  of Base  Inventory,  the
Inventory giving rise to the Base Account automatically loses its status as Base
Inventory.

           1.5 "Base  Inventory"  shall mean Inventory  (other than  "California
Base  Inventory"  as defined  below)  consisting  solely of national  brand name
products,  as to which any of the  Borrowers has acquired  title,  the Agent has
acquired a perfected  first security  interest as agent for and on behalf of the
Lenders and the Borrowers have furnished to the Agent information as required by
Section 5.1 (viii) and (ix),  but shall not include any Inventory  consisting of
Allou


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label goods, or any goods,  merchandise or other personal  property owned by any
other  Person and held by any of the  Borrowers  on  consignment  or  otherwise.
Inventory  immediately loses the status of Base Inventory if and when one of the
Borrowers sells it,  otherwise  passes title thereto or consumes it or the Agent
releases or transfers its security interest therein.

           1.6 "Base  Rate"  shall mean the greater of (i) that rate of interest
announced from time to time by BKB at its head office as its Base Rate, and (ii)
the rate of interest  equal to the sum of (A) 150 basis  points and (B) the rate
of  interest  equal to the  average  of the  rates on  overnight  federal  funds
transactions  with  members of the Federal  Reserve  System  arranged by federal
funds brokers (the "Overnight  Rates"), as published by the Federal Reserve Bank
of New York or, if the  overnight  Rates are not so  published  for any day, the
average of the  quotations  for the Overnight  Rates  received by the Agent from
three federal funds brokers of recognized standing selected by the Agent, as the
same may be changed from time to time.

           1.7 "Borrowers" or "Borrower"  shall mean the Parent and Distributors
jointly and severally, and on a consolidated and individual basis as the context
may  require in the sole  judgment  of the  Agent,  with any  Subsidiary  either
executing  and  delivering  to the  Lenders  and the Agent a  Subsidiary  Tie-In
Agreement  pursuant to the terms of Section 4.1.1 hereof or hereafter becoming a
party to such Subsidiary Tie-In Agreement.

           1.8 "Borrowers'  Accountants" shall mean independent certified public
accountants  reasonably  acceptable to the Agent. The Agent hereby  acknowledges
that the Borrowers' Accountants currently may include Mayer Rispler and Company.

           1.9 "Borrowing Base" shall mean an amount equal to the sum of (w) the
Borrowing Base  Percentage of the Net Outstanding  Amount of Base Accounts,  (x)
the Borrowing Base Percentage of the Net Security Value of Base  Inventory,  (y)
55% of the Eligible Documentary Letters of Credit (Base Inventory),  and (z) 50%
of the  Eligible  Documentary  Letters  of Credit  (California  Base  Inventory)
(provided  that for purposes of clauses (x),  (y) and (z) of this  Section,  the
aggregate amount  determined by such percentage  shall not exceed  $80,000,000).
Whenever the  Borrowing  Base is used as a measure of loans it shall be computed
as of, and the loans  referred to shall be those  reflected  in the Loan Account
at, the time in question.

           1.10 "Borrowing Base Percentage of the Net Outstanding Amount of Base
Accounts" shall mean (i) 85% of the Net Outstanding Amount of Base Accounts with
respect to Base Accounts other than  California  Base Accounts,  and (ii) 75% of
the Net  Outstanding  Amount of Base Accounts  with respect to  California  Base
Accounts;  provided,  however,  in the  event  that,  and  for so long  as,  the
percentage  of the  Borrowers'  Base Accounts  remaining  past due for more than
thirty (30) days from their  original due date  exceeds  fifteen (15) percent of
the  Borrowers'  Base  Accounts,  the  Borrowing  Base  Percentage  of  the  Net
Outstanding  Amount of Base Accounts  with respect to Base  Accounts  other than
California Base Accounts shall be reduced from 85% to 80%.



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<PAGE>



           1.11  "Borrowing  Base  Percentage of the Net Security  Value of Base
Inventory"  shall mean (i) 60% of the Net Security  Value of Base Inventory with
respect  to Base  Inventory,  and  (ii)  50% of the Net  Security  Value of Base
Inventory with respect to California Base Inventory.

           1.12  "Business"  shall mean the assets of and the existing  business
now operated by the Borrowers as wholesale distributor of brand name and private
label health and beauty aid  products,  cosmetics and  fragrances,  non-narcotic
prescription drugs,  non-perishable  sundries consisting of items typically sold
in pharmacies or convenience stores, and non-perishable packaged food items, and
as  manufacturer of brand name and private label health and beauty aid products,
cosmetics and fragrances.

           1.13 "Business Day" shall mean any day other than a Saturday,  Sunday
or  Jewish  Holiday,  on  which  the  head  office  of the  Agent  is  open  for
transactions of all of its normal and customary  business,  it being  recognized
that a Business  Day  relating to interest  calculated  or a portion of the Loan
payable by reference to the Eurodollar  Rate shall be any such day, other than a
Saturday,  Sunday or Jewish  Holiday,  on which  dealings  are carried on in the
Eurodollar  interbank  market and dollar  settlements  of such  dealings  may be
effected in New York, New York.

           1.14  "California  Base Accounts"  shall mean Base Accounts of any of
the Borrowers  who have informed the Agent that its principal  place of business
is located in Saugus,  California.  California  Base Accounts  shall exclude any
Accounts that do not constitute typical trade accounts in the ordinary course of
the  Borrowers'  business,  including  among  such  Accounts  to be so  excluded
Accounts due from "Foothill Capital" and "Byron Moldo."

           1.15  "California  Base  Inventory"  shall mean Inventory  consisting
solely of raw materials,  generic  chemicals and finished goods, as to which any
of the  Borrowers,  who have  informed  the Agent  that its  principal  place of
business is in Saugus,  California, has acquired title which are located at such
Borrowers'  facilities  in  Saugus,  California,  and as to which  the Agent has
acquired a perfected  first security  interest as Agent for and on behalf of the
Lenders and the Borrowers have furnished to the Agent information as required by
Section  5.1(viii) and (ix),  but shall not include any Inventory  consisting of
work-in-process,  bottles,  packaging  and  discontinued  goods,  or any  goods,
merchandise  or other  personal  property owned by any other Persons and held by
any of such Borrowers on consignment or otherwise.  Inventory  immediately loses
the status of California  Base Inventory if and when one of the Borrowers  sells
it, or otherwise  passes title  thereto or consumes it or the Agent  releases or
transfers its security interests therein.

           1.16  "Capital  Expenditures"  shall mean any  expenditure  for fixed
assets, leasehold improvements, capital leases under GAAP, installment purchases
of  machinery  and  equipment,  acquisitions  of real  estate and other  similar
expenditures  including  expenditures in the construction in progress account of
the Borrowers.


                                        4

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           1.17  "Cash   Equivalents"   shall  mean  for  the   Borrowers  on  a
consolidated  basis  the  aggregate  amount  of cash  and cash  equivalents,  as
determined in accordance with GAAP, plus the then Net Outstanding Amount of Base
Accounts.

           1.18 "Code" shall mean the Internal Revenue Code of 1986, as amended.

           1.19  "Collateral"  shall mean any and all real and personal property
of the Borrowers, whether tangible or intangible, in which the Agent now has, is
granted  by this  Agreement  or  otherwise,  or  hereafter  acquires  a security
interest or any other lien (including,  without limitation,  by way of mortgage,
pledge or assignment) to secure the Obligations.

           1.20  "Commitment  Percentage"  shall mean in relation to each Lender
the percentage set forth opposite its name below:

                   Lender                       Percentage
                   ------                       ----------

                    BKB                        24.1379310%
                    SBC                        24.1379310%
                    IBJS                       10.3448276%
                    LBC                        12.0689655%
                    BLT                         5.1724138%
                    FNBMD                      10.3448276%
                    DSB                         6.8965517%
                    KCC                         6.8965517%
                                                   100%

           1.21 "Consolidated Tangible Net Worth" shall mean the amount which is
equal to the  consolidated  net worth of the  Borrowers,  computed in accordance
with GAAP and with  Inventory  and cost of goods sold  determined on the average
cost  basis  consistent  with the  method  of  inventory  valuation  used in the
preparation  of the  Initial  Financial  Statement,  minus (i) to the extent not
otherwise  approved in advance by the Agent,  any  write-up in the book value of
any asset of the Borrowers or any Subsidiary  resulting from revaluation thereof
after the date of the Initial Financial  Statement,  (ii) the book value, net of
applicable  reserves,  of  all  intangible  assets  of  the  Borrowers  and  any
Subsidiaries,  including, without limitation, goodwill, trademarks, trade names,
copyrights,  patents and any similar rights,  and unamortized  debt discount and
expense,  (iii) the value,  if any,  attributable  to any  capital  stock of the
Borrowers  or  any  Subsidiary  held  in  treasury,  (iv)  the  value,  if  any,
attributable to any notes or subscriptions  receivable due from  stockholders in
respect of capital stock,  and (v) intercompany  accounts with  Subsidiaries and
Affiliates (including receivables due from any Subsidiaries and Affiliates).

           1.22 "Credit  Notes" shall have the meanings set forth in Section 2.1
hereof.


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           1.23 "Current  Assets" shall mean the current assets of the Borrowers
as determined in accordance with GAAP.

           1.24  "Current  Liabilities"  shall  mean  the  aggregate  amount  of
Indebtedness  of the  Borrowers  which may  properly  be  classified  as current
liabilities  in  accordance  with  GAAP  and in  any  event  including,  without
limitation,  the  portion  of any  direct  or  indirect  Indebtedness  and other
liabilities of the Borrowers  which are payable on demand,  within one year from
the  creation  thereof  or  within  one year  from the date as of which any such
calculation of Current Liabilities is made.

           1.25 "Disclosure  Letter" shall mean that certain letter of even date
herewith from the Borrowers to the Agent and the Lenders disclosing  information
as contemplated by the terms of this Agreement.

           1.26 "EBIT" for any period  shall mean an amount  equal to Net Income
for such period,  (a) plus the  following,  to the extent  deducted in computing
such Net Income: (i) interest on Indebtedness for borrowed money and (ii) taxes;
and  (b)  minus,  to  the  extent  added  in  computing  such  Net  Income,  all
extraordinary  items net of any tax  effect  caused by such items (to the extent
not already reflected in clause (a)(ii) above).

           1.27 "Eligible  Documentary Letters of Credit (Base Inventory)" shall
mean documentary Letters of Credit issued by the Agent solely to the extent such
Letters of Credit are issued for the  importation  or other purchase of finished
goods Inventory that would  otherwise  constitute Base Inventory at such time as
the Agent acquires a perfected first security  interest  therein,  provided that
such Inventory is not otherwise included in the Borrowing Base.

           1.28  "Eligible   Documentary  Letters  of  Credit  (California  Base
Inventory)" shall mean documentary  Letters of Credit issued by the Agent solely
to the extent  such  Letters of Credit are issued for the  importation  or other
purchase of finished goods Inventory that would otherwise constitute  California
Base  Inventory at such time as the Agent  acquires a perfected  first  security
interest therein,  provided that such Inventory is not otherwise included in the
Borrowing Base.

           1.29  "Encumbrances"  shall have the meaning set forth in Section 5.7
hereof.

           1.30 "ERISA" shall have the meaning set forth in Section 3.14 hereof.

           1.31 "Eurodollar Rate" means, with respect to any Interest Period, in
the case of any Euroloan Rate Amount, the annual rate of interest  determined by
the Agent,  at or before  11:00 a.m.  (Boston  time) (or as soon  thereafter  as
practicable)  on the second Business Day prior to the first day of such Interest
Period,  to be the annual rate of interest at which deposits of U.S. dollars are
offered to the Agent by prime banks in whatever Eurodollar  interbank market may
be selected  by the Agent in its sole  discretion,  acting in good faith,  at or
about the time of

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<PAGE>



determination  and in  accordance  with the usual  practice  in such  market for
delivery on the first day of such Interest Period in immediately available funds
and  having a  maturity  equal to such  Interest  Period in an amount  equal (as
nearly as may be) to such Euroloan Rate Amount.  Each such  determination by the
Agent shall be conclusive absent manifest computational error.

           1.32  "Euroloan  Rate"  shall have the  meaning  set forth in Section
2.6(i) hereof.

           1.33  "Euroloan  Rate  Amount"  means,  in relation  to any  Interest
Period, any portions of the principal amount of any Revolving Loans on which the
Borrowers  elect  pursuant to Section  2.6(i)  hereof to pay  interest at a rate
determined by reference to the Euroloan Rate.

           1.34 "Event of  Default"  shall have the meaning set forth in Section
7.1 hereof.

           1.35  "GAAP"  shall mean  generally  accepted  accounting  principles
consistently applied.

           1.36  "Guarantors"  shall have the  meaning  set forth in Section 4.3
hereof.

           1.37  "Guaranties"  shall have the  meaning  set forth in Section 4.3
hereof.

           1.38  "Indebtedness"  with  respect  to any  Person  shall  mean  and
include,  without  duplication,  (i) all items which,  in accordance  with GAAP,
would be included  as a  liability  on the  balance  sheet of such  Person,  but
excluding anything in the nature of capital stock,  surplus capital and retained
earnings, (ii) the face amount of all banker's acceptances and of all letters of
credit  issued by any bank for the account of such  Person and all drafts  drawn
thereunder,   (iii)  the  total  amount  of  all  indebtedness  secured  by  any
Encumbrances  to which any property or asset of such Person is subject,  whether
or not the  indebtedness  secured thereby shall have been assumed,  and (iv) the
total amount of all indebtedness and obligations of others which such Person has
directly or indirectly  guaranteed,  endorsed  (otherwise than for collection or
deposit in the ordinary course of business),  discounted with recourse or agreed
(contingently  or otherwise)  to purchase or  repurchase  or otherwise  acquire,
including,  without limitation,  any agreement (a) to advance or supply funds to
such other Person to maintain  working  capital,  equity  capital,  net worth or
solvency,  or (b) otherwise to assure or hold harmless such other Person against
loss in respect of its obligations.

           1.39 "Initial  Financial  Statement" shall have the meaning set forth
in Section 3.7 hereof.

           1.40  "Insolvent"  or  "Insolvency"  shall mean that there shall have
occurred  one  or  more  of the  following  events  with  respect  to a  Person:
dissolution;  termination  of  existence;  insolvency  within the meaning of the
United  States  Bankruptcy  Code or  other  applicable  statute;  such  Person's
inability  to pay its debts as they come due;  appointment  of a receiver of any
part of the property of,  execution of a trust mortgage or an assignment for the
benefit of

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creditors by, or the filing of a petition in bankruptcy or the  commencement  of
any proceedings under any bankruptcy or insolvency laws, or any laws relating to
the  relief of  debtors,  readjustment  of  indebtedness  or  reorganization  of
debtors,  or the offering of a plan to creditors for  composition  or extension,
except for any such involuntary  proceeding  commenced against such Person which
is dismissed within 60 days after the commencement  thereof without the entry of
an order for relief or the appointment of a trustee.

           1.41 "Interest  Period" means, any period relating to a Euroloan Rate
Amount, the commencement and duration of which shall be determined in accordance
with Section 2.6 hereof.

           1.42  "Inventory"  shall mean goods,  merchandise  and other personal
property,  now owned or hereafter  acquired by any of the  Borrowers,  which are
held for sale or lease or are  furnished or to be furnished  under a contract of
service or are raw  materials,  work in process or materials used or consumed or
to be used or consumed in the business of any of the Borrowers.

           1.43 "Jewish Holiday" shall mean any of the Jewish holidays specified
on Exhibit B.

           1.44 "Leases" shall mean any agreement  granting any of the Borrowers
the right to occupy  space in a structure  or real estate for any period of time
or any capital  lease or other lease of or agreement  to use  personal  property
including,  but not limited to,  machinery,  equipment,  furniture and fixtures,
whether evidenced by written or oral lease,  contract,  sales agreement or other
agreement no matter how characterized.

           1.45 "Lease  Financing  Facility" shall mean the Master Lease Finance
Agreement  dated as of April 24,  1996,  and  Equipment  Schedule No. 1 thereto,
between  Distributors and BancBoston  Leasing Inc.,  related lease documents and
the transactions contemplated thereby.

           1.46 "Letters of Credit" shall mean letters of credit issued at sight
or at time (including  documentary bankers  acceptances) in the form customarily
issued by the Agent as standby or documentary  or commercial  letters of credit,
issued by the Agent at the request of any of the  Borrowers  and for the account
of any of the Borrowers.

           1.47 "Loan" and "Loans" shall mean the Revolving Loans, as defined in
Section 2.1.

           1.48 "Loan  Account" shall mean the account on the books of the Agent
in which will be recorded Revolving Loans, including Overadvances,  if any, made
by each of the Lenders to the  Borrowers  pursuant to this  Agreement,  payments
made on such Loans and Overadvances,  if any, and other  appropriate  debits and
credits as provided by this Agreement.


                                        8

<PAGE>



           1.49 "Loan  Documents"  shall mean this Loan  Agreement and any other
documents,  instruments or agreements  executed and delivered in connection with
or as contemplated by this Loan Agreement.

           1.50  "Machinery  and  Equipment"  shall mean any  tangible  personal
property which is not Inventory.

           1.51  "Maturity  Date"  shall  mean  the  earlier  of (a)  the  third
anniversary  of the date  hereof,  or,  in the  event  that  such  date is not a
Business  Day, the Maturity Date shall mean the first  Business Day  immediately
following the third anniversary of the date hereof, or (b) as such Maturity Date
may be otherwise accelerated under the terms of Section 7.1 hereof.

           1.52      "Maximum Amount" shall mean $145,000,000.00.

           1.53 "Net Income" shall mean the  consolidated  gross revenues of the
Borrowers,  for the  period in  question,  less all  expenses  and other  proper
charges (including taxes on income), all determined in accordance with GAAP, and
with  inventory  and cost of goods sold  determined  on the  average  cost basis
consistent with the method of inventory valuation used in the preparation of the
Initial Financial  Statement,  but in any event , excluding from Net Income: (i)
any  gain or loss  arising  from any  write-up  of  assets,  except  the  extent
inclusion  thereof  shall be approved in writing by the Agent;  (ii) earnings of
any Subsidiary (other than a Borrower),  or of any business entity (other than a
Subsidiary) in which any of the Borrowers has an ownership  interest,  except to
the extent such net earnings  shall have actually been received by the Borrowers
in the form of cash  distributions;  (iii)  any  gains or  losses on the sale or
other  disposition of investments or fixed or capital  assets,  any taxes on any
such  excluded  gains,  and tax  deductions  or  credits  on account of any such
excluded losses (iv) the proceeds of any life insurance policy; (v) any deferred
or other credit  representing  any excess of the equity of any Subsidiary at the
date of acquisition  thereof over the amount  invested in such  Subsidiary;  and
(vi)  any  reversal  of any  contingency  reserve,  except  to the  extent  that
provision for such contingency  reserve shall be made from income arising during
such period; and (vii) except to the extent already deducted from gross revenues
in the calculation of Net Income, all salaries,  bonuses, dividends or any other
payments or compensation of any kind paid or distributed to any employees and/or
Affiliates of the Borrowers.

           1.54 "Net  Outstanding  Amount of Base  Accounts"  shall mean the net
amount  of  Base  Accounts  (including,  without  limitation,   California  Base
Accounts)  outstanding  after  (a)  eliminating  from the  aggregate  amount  of
outstanding  Base Accounts such  Accounts,  past due under the original terms of
sale or unpaid  more than 60 days  after  original  due date or, if  subject  to
specific dating programs  approved by the Agent,  eliminating from the aggregate
amount of  outstanding  Base Accounts such Accounts more than 150 days after the
original  invoice date;  and (b) deducting from the aggregate face amount of the
remaining  Base Accounts (i) Accounts owing from  Affiliates;  (ii) all Accounts
owing from any account  debtor in the event that 20% or more of the Accounts due
from such account debtor to any of the Borrower are more than 30 days past


                                        9

<PAGE>



due after the original due date, if subject to specific dating programs approved
by the Agent,  more than 120 days after the original invoice date; and (iii) all
payments,  adjustments,  and  credits  applicable  thereto  and all  amounts due
thereon  considered by the Agent to be difficult to collect or  uncollectible by
reason  of  return,  rejection,  repossession,  loss  or  damage  of or  to  the
merchandise giving rise thereto,  a merchandise or other dispute,  insolvency of
the account  debtor or any other  reason;  all as determined by the Agent in its
discretion,  which  determination  shall be final and binding upon the Borrowers
absent manifest error.

           1.55 "Net Security Value of Base Inventory"  shall mean the net value
of Base Inventory and  California  Base  Inventory,  calculated at the lesser of
fair market value or cost  determined on the average cost basis  consistent with
the  method  of  inventory  valuation  used in the  preparation  of the  Initial
Financial  Statement,  after  subtracting  the value of any Base  Inventory  and
California  Base  Inventory  which is damaged or defective and after taking into
account  charges and liens,  other than those of the Agent, of all kinds against
the Base Inventory and California  Base  Inventory,  changes in the market value
thereof, and transportation, processing and other handling charges affecting the
value  thereof,  all as  determined  by the  Agent in its sole and  unrestricted
discretion,  which  determination  shall be final and binding upon the Borrowers
absent manifest computational error.

           1.56  "Obligations"  shall mean any and all obligations of any of the
Borrowers  to the Agent or to any of the Lenders of every kind and  description,
direct or indirect,  absolute or  contingent,  primary or  secondary,  due or to
become due, now existing or hereafter  arising,  regardless of how they arise or
by what  agreement or instrument  they may be evidenced or whether  evidenced by
any agreement or  instrument,  and includes  obligations  to perform acts and to
refrain from acting as well as obligations to pay money.

           1.57 "Operating Cash Flow" shall mean for any fiscal period an amount
equal to (i) Net  Income  for such  period,  (ii) plus  interest,  taxes and all
depreciation,  amortization  and other non-cash charges taken in accordance with
GAAP and  deducted in computing  Net Income for such  period,  (iii) minus taxes
actually  paid  during such period and,  (iv) minus  Capital  Expenditures  made
during such period (excluding Capital  Expenditures  financed by any third party
which is not one of the Lenders).

           1.58  "Overadvance"  and  "Overadvances"  shall have the meanings set
forth in Section 2.7 hereof.

           1.59 "Parent" shall mean Allou Health & Beauty Care, Inc., a Delaware
corporation of which Distributors is a wholly-owned subsidiary.

           1.60 "Pension  Plan" and "Pension  Plans" shall have the meanings set
forth in Section 3.14 hereof.



                                       10

<PAGE>



           1.61 "Person" includes an individual,  a company,  a corporation,  an
association,  a partnership,  a limited liability company,  a joint venture,  an
unincorporated trade or business enterprise, a trust, an estate, or a government
(national, regional or local) or an agency, instrumentality or official thereof.

           1.62 "PBGC" shall have the meaning set forth in Section 3.14 hereof.

           1.63 "Plan" and  "Plans"  shall have the meaning set forth in Section
3.14 hereof.

           1.64 "Pledge  Agreement"  shall have the meaning set forth in Section
4.1.1 hereof.

           1.65  "Prohibited  Transactions"  shall have the meaning set forth in
Section 3.14 hereof.

           1.66 "Reserve  Charge" means, for each day on which any Euroloan Rate
Amount is outstanding, a reserve charge in an amount equal to the product of:

           (i) the  outstanding  principal  amount of the Euroloan  Rate Amount;
           multiplied by

           (ii)(a) the Eurodollar Rate  (expressed as a decimal)  divided by one
           minus the Reserve Rate, minus

               (b) the Eurodollar Rate (expressed as a decimal); multiplied by

           (iii) 1/360.

           1.67  "Reserve  Rate"  means  the rate in  effect  from time to time,
expressed  as a decimal,  at which each  Lender  would be  required  to maintain
reserves  under  Regulation D of the Board of  Governors of the Federal  Reserve
System  (or any  successor  or  similar  regulation  relating  to  such  reserve
requirements)  against its  respective  Commitment  Percentage of  "Eurocurrency
Liabilities"  (as such term is used in such  Regulation  D) if such  liabilities
were outstanding.

           1.68 "Revolving Credit Commitment" shall mean, in relation to each of
the Lenders,  the maximum  amount of  Revolving  Loans that such Lender shall be
committed to make to the Borrowers  upon the terms and subject to the conditions
contained in this  Agreement,  which amount shall be equal to the product of the
Maximum  Amount  times  such  Lender's  Commitment  Percentage  (i.e.  for  BKB:
$145,000,000 x 24.1379310% = $35,000,000;  for SBC: $145,000,000 x 24.1379310% =
$35,000,000;  for IBJS:  $145,000,000  x  10.3448276%  =  $15,000,000;  for LBC:
$145,000,000 x 12.0689655% = $17,500,000;  for BLT:  $145,000,000 x 5.1724138% =
$7,500,000;  for FNBMD:  $145,000,000  x  10.3448276%  =  $15,000,000;  for DSB:
$145,000,000 x 6.8965517 = $10,000,000; and for KCC: $145,000,000 x 6.8965517% =
$10,000,000).



                                       11

<PAGE>



           1.69 "Revolving Loan" shall have the meaning set forth in Section 2.1
hereof.

           1.70  "Subsidiary"  shall mean,  with  reference  to any Person,  any
corporation,  association,  joint stock company, business trust or other similar
organization  of whose total capital stock or voting stock such Person  directly
or indirectly owns or controls more than 50% thereof or any partnership or other
entity in which such Person  directly or indirectly has more than a 50% interest
or which is controlled directly or indirectly by such Person.

           1.71 "Subsidiary  Tie-In  Agreement" shall mean the Subsidiary Tie-In
Agreement,  as  originally  executed  and  delivered on December 10, 1991 and as
amended from time to time,  referred to in Section 4.1.1 hereof. Such Subsidiary
Tie-In Agreement may be amended from time to time to add additional Borrowers or
otherwise.

           1.72 "Total  Interest"  shall mean for any fiscal period an aggregate
amount equal to all expenses  incurred,  accrued or actually  paid by any of the
Borrowers  constituting interest expense, as determined in accordance with GAAP,
plus payments  included in any rental payments under equipment leases (including
the Lease  Financing  Facility )  constituting  implicit  interest  payments not
otherwise included in such interest expense under GAAP.

           1.73 "Total  Liabilities"  shall mean all of the  liabilities  of the
Borrowers as determined in accordance with GAAP.

           1.74  "Working  Capital"  shall  mean an  amount  for the  Borrowers,
determined in accordance  with GAAP,  equal to the excess of Current Assets over
Current Liabilities.

For purposes of this Agreement, except as otherwise expressly provided herein or
unless the context otherwise requires:

                     (i)  references  to any Person  defined  in this  Section 1
           refer to such  Person and its  successor  in title and assigns or (as
           the  case  may  be)  his  successors,   assigns,   heirs,  executors,
           administrators and other legal representatives;

                     (ii) references to this Agreement refer to such document as
           originally  executed,  or if subsequently varied or supplemented from
           time to time,  as so  varied  or  supplemented  and in effect at that
           relevant time of reference thereof;

                     (iii) words  importing  the singular only shall include the
           plural and vice versa, and words importing the masculine gender shall
           include the feminine  gender and vice versa,  and all  references  to
           dollars shall be to United States Dollars; and

                     (iv)  accounting  terms  not  otherwise   defined  in  this
           Agreement or any of the other  documents,  instruments  or agreements
           executed and delivered in connection


                                       12

<PAGE>



           herewith or contemplated  hereby shall have the meanings  assigned to
           them in accordance with GAAP.

SECTION 2.           BORROWERS' LOAN ACCOUNT; REVOLVING LOANS.

           2.1  Loans.  Upon the terms and  subject  to the  conditions  of this
Agreement, and in reliance upon the representations, warranties and covenants of
the Borrowers made herein,  each of the Lenders  severally  agrees to make loans
(including  Overadvances as defined in and made available in accordance with the
terms of  Section  2.7  hereof)  ("Revolving  Loans")  to the  Borrowers  at the
Borrowers'  request from time to time,  from and after the date hereof and prior
to the Maturity  Date up to a maximum  aggregate  principal  amount  outstanding
(after  giving  effect to all amounts  requested)  at any one time equal to such
Lender's  Revolving  Credit  Commitment;  provided that the aggregate  principal
amount of Revolving Loans outstanding at any time (excluding  Overadvances) plus
the aggregate  face amount of Letters of Credit  outstanding  at such time shall
not exceed the lesser of (i) the Maximum  Amount and (ii) the Borrowing  Base at
such time,  and  provided,  further,  that at the time the  Borrowers  request a
Revolving  Loan and after  giving  effect to the  making  thereof  there has not
occurred and is not continuing an Event of Default or any event which,  with the
giving of notice or the passage of time, or both,  would  constitute an Event of
Default.  The  Revolving  Loans shall be made pro rata in  accordance  with each
Lender's  Commitment  Percentage in accordance with the terms of this Agreement,
including,  without limitation Section 9 hereof.  Except as otherwise  permitted
under Section 2.7 hereof for certain  Overadvances,  the  Borrowers  jointly and
severally agree that it shall be a payment Event of Default under Section 7.1(i)
hereof, without notice or demand of any kind, if at any time the aggregate debit
balance of the Loan Account plus the aggregate  face amount of Letters of Credit
outstanding  at such time shall exceed the lesser of (i) the Maximum  Amount and
(ii) the Borrowing Base,  unless the Borrowers shall,  upon demand by the Agent,
promptly pay cash to the Agent to be credited to the Loan Account in such amount
as shall be necessary to eliminate the excess.  All requests for Revolving Loans
shall be in such form and shall be made in such manner as is consistent with the
Agent's  customary  practices.  The Revolving  Loans shall be evidenced by Third
Restated and Amended Revolving Credit Notes  (collectively,  the "Credit Notes")
in the form of Exhibit A attached hereto.

           2.2 Loan Account.  The Agent shall enter Revolving Loans as debits in
the Loan  Account  for each of the  Lenders.  The Agent shall also record in the
Loan Account all payments  made by the  Borrowers on account of Revolving  Loans
(including  Overadvances),  and may also  record  therein,  in  accordance  with
customary accounting  practices,  other debits and credits,  including customary
banking charges and all interest,  fees, charges and expenses  chargeable to the
Borrowers  under this  Agreement.  The debit  balance of the Loan Account  shall
reflect the aggregate  amount of the Borrowers'  Obligations to the Lenders from
time to time by reason of Revolving  Loans  (including  Overadvances)  and other
appropriate charges hereunder. At least once each month the Agent shall render a
statement  of  account  showing  as of its date the  debit  balance  of the Loan
Account for each of the Lenders and in the aggregate which, unless within thirty
(30) days of such date notice to the  contrary is received by the Agent from the
Borrowers


                                       13

<PAGE>



or any Lender, shall be considered correct and accepted by the Borrowers and the
Lenders and conclusively binding upon them absent manifest error.

           2.3 Payment. Subject to the terms of Section 2.6 and 2.8.3 hereof the
Borrowers may prepay  outstanding  Revolving Loans (including  Overadvances) and
the  Obligations  evidenced  by the Credit Notes in whole or in part at any time
without  premium or penalty.  Amounts so paid and other  amounts may be borrowed
and  reborrowed  from time to time as provided in Section  2.1. On the  Maturity
Date, the Borrowers  shall repay to the Agent all  outstanding  Revolving  Loans
(including Overadvances) and the Credit Notes, together with all unpaid interest
thereon  and  all  fees  and  other  amounts  due  hereunder.  All of the  other
indebtedness  evidenced by the Credit Notes,  shall, if not sooner paid, also be
absolutely  due and  payable on the  Maturity  Date.  In the case of any partial
payment of the Credit Notes,  the total amount of such partial  payment shall be
allocable  among the Credit Notes,  subject to adjustment as provided in Section
9.4 hereof, pro rata in accordance with the Commitment Percentage of each of the
Lenders.

           2.4 Letters of Credit.  Upon the terms and subject to the  conditions
of this  Agreement,  and in reliance upon the  representations,  warranties  and
covenants of the Borrowers made herein,  the Agent agrees to issue, as agent for
and under the joint  responsibilities of the Lenders, to the extent permitted by
law or the Uniform Customs  Practices of the  International  Chamber of Commerce
governing  Letters of Credit  (Publication  No. 500 or any  successor  thereto),
Letters of Credit upon the  application of the Borrowers  during the period from
the date hereof to the Maturity  Date;  provided  that the  aggregate  principal
amount of Letters of Credit  outstanding for the account of the Borrowers at any
time shall not (i) exceed $15,000,000, or (ii) cause the aggregate debit balance
in the Loan  Account at such time plus the  aggregate  face amount of Letters of
Credit then  outstanding  to exceed the lesser of (y) the Maximum  Amount or (z)
the Borrowing Base; and provided, further that at the time the Borrowers request
the  issuance  of a Letter of Credit  and after  giving  effect to the  issuance
thereof,  there has not occurred and is not  continuing  any Event of Default or
any event  which,  with the giving of notice or the  passage  of time,  or both,
would  constitute  an Event of Default.  All Letters of Credit  shall expire not
later than the Maturity Date.  Without limiting the foregoing,  if any Letter of
Credit would by its terms expire after the Maturity Date,  the Borrowers  shall,
on the Maturity  Date,  cause another letter of credit issued by another bank to
be  substituted  therefor or cause  another  bank  satisfactory  to the Agent to
indemnify the Agent for the benefit of the Lenders to its  satisfaction  against
any and all liabilities and obligations in respect to such Letter of Credit and,
in such event,  this Agreement shall continue in full force and effect until all
of the  Obligations  under any such  Letters of Credit have been paid in full to
the Agent for the account of the Lenders.

           Amounts  drawn under the Letters of Credit shall  become  immediately
due and payable,  jointly and  severally,  by the Borrowers to the Agent and, if
not paid in  accordance  with the terms of any such  Letter of Credit,  shall be
added to the Loan Account as  Revolving  Loans as of the date funds are advanced
under such Letter of Credit and shall be  immediately  due and payable  upon the
maturity of the Credit Notes.



                                       14

<PAGE>



           In order to evidence  such Letters of Credit,  each of the  Borrowers
shall enter into, with the Agent,  such agreements and execute such  instruments
and documents as the Agent customarily requires in like transactions, including,
but not limited to, a letter of credit application and agreement.  The Borrowers
hereby acknowledge and agree that each of their presidents,  vice presidents and
chief financial  officers is authorized to sign applications for the issuance of
Letters of Credit and that the execution and submission  thereof to the Agent by
any  such  officer  for the  account  of any of the  Borrowers  shall be for the
benefit and liability hereunder of each of the Borrowers.

           2.5 Interest on Revolving Loans.  Subject to the terms of Section 2.6
and Section 2.7 hereof,  the  Revolving  Loans shall bear interest at a rate per
annum equal to .375%  above the Base Rate in effect from time to time;  provided
that if any Loan or any  portion  thereof  is not paid when due,  so long as any
overdue amount remains  unpaid,  then the unpaid balance of such Loan shall bear
interest, in lieu of interest otherwise payable, to the extent permitted by law,
compounded monthly at an interest rate equal to 4% above the Base Rate in effect
from  time to time  after  such Loan or any  portion  thereof  becomes  overdue.
Interest  on  Loans  based on the  Base  Rate  shall  be  payable,  jointly  and
severally,  by the  Borrowers  to the  Agent  monthly  in  arrears  on the first
Business Day of each month. Any change in the Base Rate shall result in a change
on the same day in the rate of interest to accrue from and after such day on the
unpaid  balance of  principal  of the  Loans.  Interest  accruing  on the unpaid
balance of Loans from time to time shall be calculated on the basis of a 360-day
year for the actual number of days elapsed.

           2.6       Eurodollar Interest Rate Option.

           (i) At the  option of the  Borrowers,  so long as no Event of Default
has  occurred  and is then  continuing  and no event  which,  with the giving of
notice or the passage of time, or both, would constitute an Event of Default has
occurred and is then continuing, the Borrowers may elect from time to time prior
to three months  before the Maturity Date to have all or a portion of the unpaid
principal  amount of any  Revolving  Loan bear  interest  during any  particular
Interest  Period at the Euroloan Rate (as hereinafter  defined);  provided that:
(i) the number of any such  portions  with respect to which such an election has
been made remaining  outstanding at any point in time does not exceed three, and
(ii) any such  portion of any  Revolving  Credit  Loan shall be in an amount not
less than $5,000,000 or some greater integral  multiple of $500,000 with respect
to any single  Interest  Period.  Any election by the Borrowers to have interest
calculated  at the  Euroloan  Rate  shall  be made by  notice  (which  shall  be
irrevocable)  to the Agent at least three (3)  Business  Days prior to the first
day of the proposed Interest Period, specifying the Euroloan Rate Amount and the
duration of the proposed  Interest  Period  (which must be for one, two or three
full months). Any such election of a Euroloan Rate shall lapse at the end of the
expiring  Interest  Period  unless  extended  by a  further  election  notice as
hereinbefore provided. Each Euroloan Rate Amount shall bear interest during each
Interest Period relating  thereto at an annual rate (the "Euroloan  Rate") equal
to the Eurodollar  Rate plus 2.00%.  Interest on each Euroloan Rate Amount shall
be payable on the last day of each Interest Period relating thereto.



                                       15

<PAGE>



           (ii) The  Borrowers  shall jointly and severally pay to the Agent the
Reserve  Charge,  if any, with respect to Euroloan Rate Amounts of the Revolving
Loans  outstanding  from time to time on the dates  interest  is payable on such
Euroloan Rate Amounts.

           (iii) The Agent shall  forthwith upon  determining  any Euroloan Rate
provide notice thereof to the Borrowers and the Lenders.  Each such notice shall
be  conclusive  and binding upon the  Borrowers  absent  manifest  computational
error.

           (iv) If, with respect to any Interest Period,  the Agent is unable to
determine the Euroloan Rate relating thereto,  or adverse or unusual  conditions
in or changes in applicable law relating to the applicable  Eurodollar interbank
market  make  it  illegal  or,  in  the   reasonable   judgment  of  the  Agent,
impracticable,  to fund therein the Euroloan  Rate Amount or make the  projected
Euroloan Rate unreflective of the actual costs of funds therefor to the Agent or
any Lender, or if it shall become unlawful for the Agent or any Lender to charge
interest  on the Loan on a Euroloan  Rate  basis,  then in any of the  foregoing
events the Agent shall so notify the  Borrowers  and interest will be calculated
and payable in respect of such projected  Interest Period (and thereafter for so
long as the conditions referred to in this sentence shall continue) by reference
to the Base Rate in accordance with Section 2.5 hereof.

           (v) No  Interest  Period may be  selected  by the  Borrowers  for any
Euroloan Rate Amount which ends beyond the Maturity Date. If any Interest Period
would  otherwise  end on a day which is not a  Business  Day for  Euroloan  Rate
purposes,  that Interest  Period shall end on the Business Day next preceding or
next succeeding such day as determined by the Agent in accordance with its usual
practices  and  notified to the  Borrowers  at the  beginning  of such  Interest
Period.

           (vi) If for any reason any payment or  prepayment  of  principal of a
Euroloan  Rate  Amount is made on any day  prior to the last day of an  Interest
Period,  then the Borrowers shall reimburse the Agent, on behalf of the Lenders,
for the loss, if any, computed pursuant to the following formula:


                     L  =  (R-T) x P x  D              +  RC
                           --------------
                           360

                     L  =  amount  of loss to be  reimbursed  to the Agent
                           (for the account of the Lenders).

                     R  =  the Euroloan Rate at the time of the payment.

                     T  =  effective  interest rate in which United States
                           Treasury  bills  maturing  on the last day of the
                           then  current  Interest  Period  and in the  same
                           amount as the


                                       16

<PAGE>



                           unpaid principal amount of the Loan can be  purchased
                           by the Agent on the day of such payment of principal.

                     D  =  the number of days remaining in the  Interest  Period
                           as of the date of such payment.

                     P  =  the amount of principal paid.

                     RC =  the Reserve Charge due through the date of payment.

The Borrowers shall pay to the Agent (for the account of the Lenders) the amount
of loss, computed in accordance with the foregoing formula, upon presentation by
the Agent of a statement setting forth the Agent's  calculation of the amount of
such loss,  which notice  shall be  conclusive  and binding  upon the  Borrowers
absent manifest computational error.

           2.7       Overadvances.

           (i) The  Borrowers  may request of the Agent in writing  from time to
time that the Lenders make loans to the  Borrowers  at a time,  or the Agent may
permit loans, when the debit balance in the Loan Account plus the aggregate face
amount of Letters of Credit  outstanding  exceeds  the  Borrowing  Base or which
loans will cause the debit balance in the Loan Account plus the  aggregate  face
amount of Letters of Credit  outstanding to exceed the Borrowing  Base. Any such
written  notice  from  the  Borrowers  to  the  Agent  as  contemplated  by  the
immediately  preceding  sentence  shall  set  forth  the  dollar  amount of such
contemplated  overadvance,  and,  such notice  shall be provided to the Agent at
least five (5) Business Days prior to the Borrower's intended borrowing creating
such  overadvance.  The Agent, as agent for and on behalf of the Lenders,  shall
consider  any such  request and may  determine to make such loan or loans in its
sole and  unrestricted  discretion,  subject to clause (ii) of this Section 2.7.
Any such overadvances shall be made for the debit account of each of the Lenders
and the  Lenders  shall  reimburse  the Agent for the making of any such loan as
though  such loan were a Loan  duly  made in  accordance  with the terms of this
Agreement (any such loan or loans being herein  referred to  individually  as an
"Overadvance"  and collectively as  "Overadvances").  The Agent shall enter such
Overadvances, along with all interest, expenses and charges relating thereto, as
debits in the Loan Account.  All Overadvances  shall bear interest at a rate per
annum equal to 2.00%  above the Base Rate in effect  from time to time  provided
that if any  Overadvance  or any portion  thereof is not paid when due, then the
unpaid  balance of such  overadvance  shall bear  interest,  in lieu of interest
otherwise  payable,  to the extent  permitted by law,  compounded  monthly at an
interest  rate equal to 4% above the Base Rate in effect from time to time after
such   overadvance  or  any  portion  thereof  becomes   overdue.   Interest  on
Overadvances  shall be payable,  jointly and severally,  by the Borrowers to the
Agent for the  account of the Lenders  monthly in arrears on the first  Business
Day of each month.  Any change in the Base Rate shall  result in a change on the
same day in the rate of  interest  to  accrue  from and  after  such date on the
unpaid balance of principal of any


                                       17

<PAGE>



Overadvance.  Interest  accruing on the unpaid balance of overadvances from time
to time shall be calculated on the basis of a 360-day year for the actual number
of days elapsed.

           (ii)  Although  it will be  within  the  discretion  of the  Agent to
approve  or reject  requests  from the  Borrowers  for  Overadvances  under this
Agreement,  and  Overadvances  shall otherwise only be permitted as contemplated
hereby, in no event shall: (a) the aggregate amount of Overadvances  pursuant to
Section 2.7(i) at any one time outstanding  exceed the maximum  aggregate amount
of  $15,000,000;  (b) the  debit  balance  in the Loan  Account  at any one time
outstanding exceed the Maximum Amount minus the aggregate face amount of Letters
of Credit  outstanding;  and (c) any  Overadvance  be made at such time as there
exists an Event of Default or an event that with the passage of time, the giving
of notice, or both, will become an Event of Default. In addition,  the Borrowers
hereby jointly and severally covenant and agree to cause there to be outstanding
no Overadvances for thirty consecutive days during the period from May 1 through
August 31 of each year prior to the Maturity  Date.  Failure of the Borrowers to
maintain  any  of  the  foregoing  conditions,  covenants  or  agreements  shall
constitute a payment Event of Default  pursuant to Section 7.1(i),  and shall be
deemed to be a failure to perform an obligation hereunder.

           2.8       Fees.

               2.8.1 The Borrowers shall pay to the Agent for the benefit of the
Lenders pro rata in  proportion  to their  respective  Commitment  Percentages a
commitment fee,  computed on the average daily debit balance in the Loan Account
for the prior month and payable  monthly in arrears on the first Business Day of
each month, equal to (a) from the date hereof through September 30, 1998, 0.125%
per annum,  and (b) from October 1, 1998 through the Maturity  Date,  0.250% per
annum of the excess of (i) the Maximum Amount over (ii) the principal  amount of
Revolving Loans outstanding from time to time.

               2.8.2 The Borrowers shall pay to the Agent for the benefit of the
Lenders in proportion to their respective Commitment Percentages for issuance of
each Letter of Credit a fee  quarterly in arrears that is either (i) a fee equal
to the greater of 1 1/2% per annum of the face amount of each standby  Letter of
Credit or such minimum fee for each such Letter of Credit as may be generally in
effect from time to time, or (ii) a fee equal to the greater of 1/4% of the face
amount of each sight  documentary  Letter of Credit or such minimum fee for each
such Letter of Credit as may be generally in effect from time to time,  or (iii)
a fee equal to the  greater of 1 1/2% per annum of the face  amount of each time
documentary  Letter of Credit or such minimum fee for each such Letter of Credit
as may be generally  in effect from time to time;  plus such fees and charges as
are customarily charged by the Agent.

               2.8.3 If prepayment and termination of the Revolving  Loans,  the
Credit  Notes  and  this  Agreement  are  made,  utilizing  any  funds  for such
prepayment  other  than  funds  internally  generated  by the  operation  of the
Business prior to such prepayment and  termination  (and other than in the event
the Agent requests that the Borrowers make any such prepayment to any of the


                                       18

<PAGE>



Lenders),  on or prior to (i) the  first  anniversary  of the date  hereof,  the
Borrowers  shall pay to the Agent for the  account of the  Lenders  (pro rata in
proportion to their respective Commitment Percentages) 1% of the Maximum Amount;
and (ii) the second  anniversary of the date hereof,  the Borrowers shall pay to
the Agent for the  account  of the  Lenders  (pro  rata in  proportion  to their
respective Commitment Percentages) 1/2 of 1% of the Maximum Amount.

               2.8.4  Simultaneously with the execution and delivery hereof, the
Borrowers shall pay to the Agent for the account of BKB, IBJS, SBC, LBC and BLT,
as the Lenders under the Prior Loan  Agreement  (pro rata in proportion to their
respective Commitment Percentages) an amendment fee of $50,000 in the aggregate.

               2.8.5 The  Borrowers  shall pay to the Agent any and all  charges
customarily made by the Agent against Borrowers.

               2.8.6 If after the date  hereof,  the Agent or any of the Lenders
shall have determined that the adoption of any applicable law, rule, regulation,
guideline,  directive  or  request  (whether  or not  having  the  force of law)
regarding  capital  requirements  for banks or bank  holding  companies,  or any
change therein, or any change in the interpretation or administration thereof by
any governmental  authority,  central bank or comparable agency charged with the
interpretation or administration  thereof,  or compliance by the Agent or any of
the Lenders with any of the foregoing  effective after the date hereof,  imposes
or  increases  a  requirement  by the Agent or any of the  Lenders  to  allocate
capital resources to the Lenders' commitment to make Loans or issue and maintain
Letters of Credit  hereunder  which has or would have the effect of reducing the
return on the Agent's or such  Lender's  capital to a level below that which the
Agent or such Lender could have achieved (taking into  consideration the Agent's
or such  Lender's then  existing  policies with respect to capital  adequacy and
assuming full utilization of the Agent's or such Lender's  capital) but for such
adoption, change or compliance by any amount deemed by the Agent to be material,
then: (i) the Agent shall promptly after its  determination  of such  occurrence
give notice  thereof to the Borrowers;  and (ii) the Borrowers  shall pay to the
Agent,  for the  benefit  of such  Lender  bearing  such  reduced  return  as an
additional  fee from time to time within  thirty  (30) days after the  Borrowers
receive written notice thereof such amount as the Agent or such Lender certifies
to be the amount that will  compensate it for such  reduction.  A certificate of
the Agent or such  Lender  claiming  compensation  under this  Section  shall be
conclusive absent manifest computational error. Such certificate shall set forth
in  reasonable  detail  the  nature  of  the  occurrence  giving  rise  to  such
compensation,  the  additional  amount or amounts to be paid to it hereunder and
the method by which such amounts were  determined.  In determining  such amount,
the Agent and each  Lender  may use any  reasonable  averaging  and  attribution
methods.  In lieu of the payments  provided for in clause (ii) of this  Section,
the Borrowers may,  within 120 days of the Agent's notice pursuant to clause (i)
of this Section, prepay such Lender all Obligations then accruing to such Lender
and  terminate  all of such  Lender's  rights and  obligations  pursuant to this
Agreement  without  payment of any fee  pursuant  to Section  2.8.3  hereof,  if
applicable,  on account of such prepayment. In the event of any such prepayment,
the Maximum  Amount  shall be reduced by the amount of such  Lender's  Revolving
Credit Commitment or an


                                       19

<PAGE>



additional bank  satisfactory to the Borrowers and the Agents may be included as
a Lender hereunder.

               2.8.7 Anything hereinbefore to the contrary  notwithstanding,  if
any future applicable law or any future amendment to any present  applicable law
(which  expression,  as used in this Agreement,  includes statutes and rules and
regulations thereunder and interpretations  thereof by any competent court or by
any  governmental  or  other  regulatory  body  or  official  charged  with  the
administration  or  the   interpretation   thereof  and  requests,   directives,
instructions  and  notices  at any  time or from  time  to  time  heretofore  or
hereafter  made  upon or  otherwise  issued  to the  Agent or any  Lender by any
central bank or other fiscal, monetary or other authority, whether or not having
the force of law) becoming effective after the date hereof shall (i) subject the
Agent or any Lender to any tax, levy, impost,  duty,  charge,  fee, deduction or
withholding of any nature with respect to this Agreement,  the Maximum Amount of
the  Revolving  Loans or the  payment to the Agent or such Lender of any amounts
due to it hereunder, or (ii) materially change the basis of taxation of payments
to the Agent or such  Lender of the  principal  or the  interest on or any other
amounts  payable  to the  Agent or such  Lender  hereunder,  or (iii)  impose or
increase or render  applicable any special or  supplemental  special  deposit or
reserve  or  similar  requirements  or  assessment  against  assets  held by, or
deposits in or for the account of, or any  liabilities of, or loans by an office
of the Agent or any Lender in respect of the transactions  contemplated  herein,
or (iv) impose on the Agent or any Lender any other  conditions or  requirements
with respect to this  Agreement,  the Maximum Amount or any Loan, and the result
of any of the  foregoing is (A) to increase the cost to the Agent or such Lender
of making, funding or maintaining all or any part of the Loans, or (B) to reduce
the amount of principal,  interest or other amount  payable to the Agent or such
Lender hereunder, or (C) to require the Agent or such Lender to make any payment
or to forego any  interest or other sum payable  hereunder,  the amount of which
payment or  foregoing  interest or other sum is  calculated  by reference to the
gross  amount  of any sum  receivable  or deemed  received  by the Agent or such
Lender from the Borrowers  hereunder,  then, and in each such case not otherwise
provided  for  hereunder,  the  Borrowers  will,  within  thirty (30) days after
receipt of written notice from the Agent accompanied by calculations  thereof in
reasonable  detail,  pay to the Agent or such Lender such additional  amounts as
will be sufficient to  compensate  the Agent or such Lender for such  additional
cost,  reduction,  payment or foregoing interest or other sum, provided that the
foregoing  provisions  of this  sentence  shall  not  apply  in the  case of any
additional cost, reduction, payment or foregoing interest or other sum resulting
from any taxes  charged upon or by reference to the overall net income,  profits
or gains of the Agent or any Lender.

               2.8.8  The  Borrowers  authorize  the Agent to charge to the Loan
Account or to any deposit  account  which any of the Borrowers may maintain with
the Agent or any Lender the interest, fees, charges, taxes and expenses provided
for in this Agreement or any other document  executed or delivered in connection
herewith and any payments due to the Agent in respect of Letters of Credit.


                                       20

<PAGE>



           SECTION 3.  REPRESENTATIONS AND WARRANTIES.

           Each of the Borrowers jointly and severally represents,  warrants and
covenants, as to itself and as to each of the other Borrowers,  individually and
on a consolidated basis as the context may require, to the Agent and the Lenders
as follows:

           3.1  Organization and  Qualification.  Each of the Borrowers (i) is a
corporation duly organized, validly existing and in good standing under the laws
of the State of its  incorporation  as indicated  on Exhibit B attached  hereto;
(ii) has all  requisite  corporate  power and  authority to own its property and
conduct its business as now  conducted and as presently  contemplated;  (iii) is
duly qualified and in good standing in each  jurisdiction  (which  jurisdictions
are listed on Exhibit B attached  hereto) where the nature of its  properties or
its business (present or proposed) requires such qualification, except where the
failure  to do so would not have a  material  adverse  effect  on the  business,
properties or condition  (financial or otherwise) of such Borrower  individually
or all of the Borrowers  taken as a whole;  and (iv) has no  Subsidiaries  other
than those listed in the Disclosure Letter.

           3.2 Corporate Authority.  The execution,  delivery and performance of
this  Agreement and the Credit Notes and the  transactions  and other  documents
contemplated hereby and thereby (including the granting of the security interest
hereunder) are within each Borrower's corporate authority,  have been authorized
by all necessary corporate proceedings on the part of each Borrower,  and do not
and  will  not  contravene  any  provision  of  law,  or any  provision  of each
Borrower's charter document or its by-laws,  or contravene any provisions of, or
constitute an Event of Default  hereunder or a default under,  or an event which
with the lapse of time or the giving of notice,  or both,  would  constitute  an
Event of Default  hereunder  or a default  under any other  material  agreement,
instrument, judgment, order, decree, permit, license or undertaking binding upon
or  applicable  to the  Borrowers or any of their  properties,  or result in the
creation,  other than in favor of the Agent, of any mortgage,  pledge,  security
interest,  lien,  encumbrance  or charge upon any of the properties or assets of
the Borrowers.

           3.3  Valid  Obligations.  This  Agreement  and all of its  terms  and
provisions  (including the security  interest  granted  hereunder)  are, and the
Obligations  of the Borrowers  under each of the Credit Notes,  when each Credit
Note is duly executed and delivered for value, will be, legal, valid and binding
Obligations of each of the Borrowers enforceable in accordance with their terms,
subject to bankruptcy,  insolvency and similar laws affecting  creditors' rights
in general and the availability of equitable remedies.

           3.4  Approvals.  The  execution,  delivery  and  performance  of this
Agreement  and  the  Credit  Notes  and the  transactions  and  other  documents
contemplated  hereby and thereby do not  require any  approval or consent of, or
filing or  registration  with, any  governmental or other agency or authority or
any other Person, except as disclosed on Exhibit B attached hereto.


                                       21

<PAGE>



           3.5 Title to  Properties;  Absence  of Liens.  As of the date of this
Agreement,  the  Borrowers  have  good  and  marketable  title  to all of  their
respective properties,  assets and rights of every name and nature now purported
to be owned by it, including without limitation the Collateral, the Business and
the properties,  assets and rights reflected in the Initial Financial Statement,
in each case free from all liens, charges and encumbrances  whatsoever except as
set forth in the  Disclosure  Letter.  All real property  owned or leased by the
Borrowers is described in Exhibit B.

           3.6 Compliance. The Borrowers have all necessary permits,  approvals,
authorizations,  consents, licenses, franchises,  registrations and other rights
and privileges  (including patents,  trademarks,  trade names and copyrights) to
allow them to own and operate their business without any violation of law or the
rights of others; and the Borrowers are duly authorized,  qualified and licensed
under and in compliance with all applicable  laws,  regulations,  authorizations
and orders of public authorities.

           3.7 Financial  Statements.  The Borrowers have furnished to the Agent
the audited consolidated and unaudited consolidating balance sheet and statement
of income of the Business as at March 31, 1997 and December 31, 1996 and for the
12 month and 9 month periods, respectively, then ended separating out the Parent
and its  Subsidiaries on the one hand from  Distributors and its Subsidiaries on
the other  hand (the  "Initial  Financial  Statement"),  which was  prepared  in
accordance with GAAP,  certified (as to the audited statements) by Mayer Rispler
and Company and fairly  presents the  financial  position of the  Business  with
respect to its assets and  liabilities as at the close of business on such dates
and  the  results  of  operations   for  the  12  month  and  9  month  periods,
respectively,  then  ended.  The  Borrowers  have  also  furnished  to the Agent
projections,  dated on or about July, 1997, of the Borrowers'  future results of
operations on a consolidated  basis for five fiscal years,  which  represent the
Borrowers' good faith estimates as of the date thereof and as of the date hereof
based upon the  assumptions  stated  therein  which  assumptions  the  Borrowers
believe were and continue to be fair,  reasonable and proper in light of current
and reasonably foreseeable business conditions.  At the date hereof, none of the
Borrowers have any  Indebtedness  or other  liabilities,  debts or  obligations,
whether accrued, absolute, contingent or otherwise, and whether due or to become
due,  including,  but not limited to,  liabilities  or obligations on account of
taxes or  other  governmental  charges,  that are not set  forth  on  Exhibit  C
attached  hereto.  Since the  Initial  Financial  Statement  there  have been no
changes in the  assets,  liabilities,  financial  condition  or  business of the
Borrowers  or the  Business  the  effect of which  has,  individually  or in the
aggregate,  been materially  adverse,  except as set forth on Exhibit B attached
hereto.

           3.8 Solvency.  Each of the Borrowers has and,  after giving effect to
the Loans,  will have,  assets  (both  tangible  and  intangible)  having a fair
saleable value in excess of the amount required to pay the probable liability on
its   then-existing   debts  (whether   matured  or  unmatured,   liquidated  or
unliquidated,  fixed or  contingent);  each of the  Borrowers  has and will have
access to adequate  capital for the conduct of its business and the discharge of
its debts  incurred in connection  therewith as such debts  mature;  none of the
Borrowers was Insolvent immediately


                                       22

<PAGE>



prior to the  consummation  of the Loans and  immediately  after  giving  effect
thereto none of the Borrowers will be Insolvent.

           3.9 Events of Default. As of the date of this Agreement,  no Event of
Default exists,  and no event or condition exists which with the passage of time
or the giving of notice, or both, would constitute an Event of Default.

           3.10  Taxes.  Each of the  Borrowers  and  each of  their  respective
Subsidiaries,  if any,  has filed  all  federal,  state  and  other tax  returns
required to be filed,  and all taxes,  assessments  and other such  governmental
charges due from such Person have been fully paid,  except those being contested
in good faith legal proceedings and with respect to which adequate reserves have
been established,  are being maintained and are fully reflected in such Person's
financial  statements.  Neither any Borrower nor any Subsidiary has executed any
waiver  that  would  have the  effect of  extending  the  applicable  statute of
limitations  in respect of tax  liabilities.  Each of the  Borrowers and each of
their  respective  Subsidiaries,  if any, has  established on its books reserves
adequate for the payment of all federal, state and other tax liabilities.

           3.11  Litigation.  Except as set forth on Exhibit B attached  hereto,
there is no litigation, proceeding or governmental investigation, administrative
or judicial,  pending or threatened against the Borrowers, any Subsidiary or the
Business which, if decided  adversely to any of Borrowers or a Subsidiary  might
have a  materially  adverse  effect on the  business,  properties  or  condition
(whether  financial or  otherwise)  of such Person  individually,  the Borrowers
taken as a whole,  Subsidiaries or the Business or on the ability of such Person
or Persons to perform its or their obligations hereunder, under the Credit Notes
or under any other agreement or document contemplated hereby.

           3.12  Margin  Rules.  No  portion  of any  Loan is to be used for the
purpose of  purchasing  or carrying any "margin  security" or "margin  stock" as
such terms are used in Regulations G, T, U or X of the Board of Governors of the
Federal Reserve System.

           3.13 Restrictions on the Borrowers. None of the Borrowers is party to
or bound by any contract,  agreement or instrument, or subject to any charter or
other corporate  restriction,  materially and adversely  affecting its business,
property, assets, operations or conditions, financial or otherwise.

           3.14 ERISA. (i) Each "Employee Pension Benefit Plan" (as such term is
defined in Section 3 of the Employee  Retirement Income Security Act of 1974, as
amended, and the rules and regulations  thereunder  ("ERISA")) now or heretofore
maintained by any of the Borrowers or any Affiliate  (individually  the "Pension
Plan" and collectively  the "Pension  Plans") and any "Employee  Welfare Benefit
Plan"  (as such  term is  defined  in  Section  3 of  ERISA)  now or  heretofore
maintained by any of the Borrowers or any Affiliate (individually the "Plan" and
collectively  the  "Plans")  is listed on  Exhibit B  attached  hereto and is in
substantial compliance with ERISA (to the extent that ERISA is applicable); (ii)
except as set forth on Exhibit B attached


                                       23

<PAGE>



hereto,  there are no benefits  vested under any Pension Plan;  (iii) no Pension
Plan, Plan or trust created thereunder,  no trustee thereof, no administrator or
fiduciary  (other than an  unrelated  third party  administrator  or  fiduciary)
thereof,  and neither any of the  Borrowers  nor any  Affiliate has engaged in a
"Prohibited  Transaction"  (as such term is defined in Section  406 of ERISA and
Section 4975 of the Code  ("Prohibited  Transaction"))  which would  subject any
such Pension Plan, Plan,  trust created  thereunder,  trustee,  administrator or
fiduciary  thereof or any of the Borrowers or any Affiliate or any party dealing
with any such  Pension  Plan,  Plan or trust to a  material  tax or penalty on a
"Prohibited  Transaction"  imposed under Section 4975 of the Code or Section 502
of ERISA; (iv) no Pension Plan or trust created  thereunder has been the subject
of a  Reportable  Event (as such term is  defined  in  Section  4043 of  ERISA),
including, without limitation, the termination of any Pension Plan or trust, (v)
if and to the extent  that either any of the  Borrowers  or any  Affiliate  is a
party to a  multi-employer  Plan (as  defined  in Section  4001 of ERISA),  then
neither any such Borrower nor any Affiliate has incurred  withdrawal  liability,
within  the  meaning  of  Section  4201  of  ERISA,  with  respect  to any  such
multi-employer  Plan and neither any of the  Borrowers nor any Affiliate has any
knowledge  that  any such  multi-employer  plan to which  such  Borrower  or any
Affiliate thereof is required to contribute is in reorganization or is insolvent
pursuant to Section  4241 or 4245 of ERISA;  (vi) no Pension Plan which is not a
multi-employer Plan is insolvent or in reorganization;  (vii) neither any of the
Borrowers nor any Affiliate has ceased  operations at a facility with the result
that such  Borrower or any  Affiliate  thereof is to be treated as a substantial
employer  as  provided  in Section  4062(e) of ERISA,  or has  withdrawn  from a
Pension  Plan with  respect  to which it was a  "substantial  employer";  (viii)
neither any of the  Borrowers  nor any  Affiliate  and no Pension  Plan or trust
created  thereunder has incurred any "accumulated  funding  deficiency" (as such
term is defined in Section 412 of the Code and Section 302 of ERISA)  whether or
not waived,  since the effective date of ERISA;  (ix) no condition  exists which
presents a material risk to any of the Borrowers or any Affiliate of incurring a
liability  to or on account  of a Pension  Plan or Plan  pursuant  to any of the
foregoing sections of the Code and ERISA; (x) the aggregate current value of all
assets of each Pension Plan which is a single-employer  plan (i.e., a plan which
is not referred to in clause (v) hereof), based upon actuarial assumptions, each
of which is  reasonable  (taking  into account the  experience  of the plans and
reasonable  expectations),  is at least equal to the aggregate  current value of
all accrued  benefits  under such  Pension  Plan,  and each such Pension Plan is
fully funded on a termination basis; and (xi) no Pension Plan and neither any of
the  Borrowers  nor any  Affiliate  has  incurred  any  liability to the Pension
Benefit Guaranty Corporation or any governmental authority succeeding to any and
all of the functions of said  corporation  (the "PBGC") over and above  premiums
required by law.

           3.15 Intellectual  Property;  Tradenames.  All (i) patents and patent
applications  in any country or  jurisdiction  and (ii)  trademarks  and service
marks  and  United  States,   state  and  foreign   registrations   thereof  and
applications  therefor in which any of the Borrowers  has an ownership  interest
are listed on Exhibit B attached  hereto.  All  tradenames  of the Borrowers are
listed in the Disclosure Letter.

           3.16 Environmental and Regulatory Compliance.  As to each of the real
properties owned or leased by any of the Borrowers or any of their Subsidiaries,
all as described on Exhibit


                                       24

<PAGE>



B, each such property is presently in  compliance in all material  respects with
and has in full force and effect all material  permits or approvals  required by
all applicable building, zoning, anti-pollution,  hazardous substance, hazardous
material,  oil,  environmental,  health,  safety or other  laws,  ordinances  or
regulations  and the Borrowers  have not received  notification  that any of the
foregoing properties is in violation of any of the foregoing provisions,  except
for any  non-compliance  with respect to or lack of  possession of the foregoing
which does not have or will not have a material  adverse  effect on the business
or  properties of the  Borrowers.  Except as set forth on Exhibit B, none of the
Borrowers has ever generated,  stored, or disposed of any hazardous  substances,
hazardous materials, or oil on any of such properties or any portion thereof and
none of the Borrowers is aware of the presence,  generation, storage or disposal
of such  substances on any of such  properties or any portion  thereof by any of
the  Borrowers or any prior owner or prior  occupant or prior user thereof or by
anyone  else,  nor is any of the  Borrowers  aware of any spill or  release of a
hazardous or toxic waste, substance or constituent, or other substance, into the
environment on or, from any of such  properties.  Except as set forth on Exhibit
B, no inquiry, notice or threat to give notice by any governmental authority has
been received by any of the Borrowers with respect to the generation, storage or
disposal  or  release  or threat of  release  thereof,  or with  respect  to any
violation of any federal, state or local environmental, health or safety statute
or regulation. Except as set forth on Exhibit B, no underground storage tanks or
surface  impoundments are on any of the properties owned or leased by any of the
Borrowers.  For the purposes of this Section,  (i) "hazardous  substances" shall
mean  "hazardous  substances"  as  defined  in the  Comprehensive  Environmental
Response,  Compensation  and Liability Act, as amended,  42 U.S.C.  ss.9601,  et
seq., and regulations thereunder or under the provisions of any other applicable
state, county or municipal law, ordinance,  rule or regulation,  (ii) "hazardous
material" and "oil" shall mean "hazardous material" and "oil", respectively,  as
defined in the Massachusetts Oil and Hazardous  Material Release  Prevention and
Response  Act, as amended,  M.G.L.  Chapter 21E, and  regulations  thereunder or
under the  provisions of any other  applicable  state,  county or municipal law,
ordinance, rule or regulation,  and (iii) "release" or "threat of release" shall
mean such terms as they are defined in any of the  foregoing  laws,  ordinances,
rules or regulations, as applicable.

           3.17  Employment  Contracts.  Set forth on Exhibit B is a list of all
written and oral employment and similar contracts, agreements and understandings
between  any of the  Borrowers  and any of  their  employees  and/or  Affiliates
currently  binding upon any of the Borrowers,  copies or summaries of which have
been  provided  to the Agent prior to the date  hereof  (other  than  contracts,
agreements and understandings between any of the Borrowers and its employees who
are not Affiliates,  whose employment was entered into in the ordinary course of
business,  whose employment is terminable at will by either party and who is not
entitled to any special bonus or other compensation measured or determined by or
directly contingent upon the economic performance of the Borrowers  individually
or taken as a whole).



                                       25

<PAGE>



           SECTION 4.  CONDITIONS OF LOANS.

           4.1  Conditions of Initial Loans,  The  obligations of the Lenders to
make the initial  Revolving  Loan under the Original Loan Agreement were subject
to the  fulfillment on or prior to the date thereof of the following  conditions
precedent:

               4.1.1   Receipt  by  the  Agent  of  the   following   documents,
certificates  and opinions in form and substance  satisfactory  to the Agent and
duly executed and delivered by the parties thereto:

               (a)  This Agreement;

               (b)  The Credit Notes, each  substantially in the form of Exhibit
                    A thereto;

               (c)  Subsidiary    Tie-In   Agreement   from    Subsidiaries   of
                    Distributors  listed on the Disclosure  Letter  ("Subsidiary
                    Tie-In Agreement");

               (d)  Joint and  Several  Guaranties  from Victor  Jacobs,  Herman
                    Jacobs  and  Jacob  Jacobs,   guarantying   the  Obligations
                    incurred by the  Borrowers  with respect to any  Overadvance
                    pursuant to Section 2.7 hereof;

               (e)  Pledge from the Parent of all of the issued and  outstanding
                    capital  stock of  Distributors  to secure  the  Obligations
                    hereunder (the "Pledge Agreement");

               (f)  Pledge   from   Distributors   of  all  of  the  issued  and
                    outstanding   capital   stock   of   the   Subsidiaries   of
                    Distributors  executing and delivering the Subsidiary Tie-In
                    Agreement to secure the Obligations;

               (g)  UCC-11 Search Reports;

               (h)  UCC-1 Financing Statements;

               (i)  Personal  financial  statements  of  Victor  Jacobs,  Herman
                    Jacobs and Jacob  Jacobs  (also known as Victor  Jacobowitz,
                    Herman Jacobowitz and Jacob Jacobowitz);

               (j)  A certified  copy of  resolutions  of each of the Borrowers'
                    Boards  of  Directors   evidencing  the  due  authorization,
                    execution  and  delivery of this  Agreement,  the  documents
                    referred to herein and the transactions  contemplated hereby
                    to which each is a party;

               (k)  Certificates  as of the date hereof  signed by the Secretary
                    of each of the Borrowers  regarding the  incumbency and true
                    signature of the officers

                                       26

<PAGE>



                    authorized to sign the documents referred to in this Section
                    4.1.1 and all other documents and instruments related to the
                    Loans and the transactions contemplated hereby;

               (1)  Certificates  of insurance or insurance  binders  evidencing
                    compliance with Section 5.3 hereof;

               (m)  A favorable legal opinion addressed to the Agent and each of
                    the Lenders  from  Parker  Chapin  Flattau and Klimpl,  LLP,
                    counsel to the Borrowers,  Victor Jacobs,  Herman Jacobs and
                    Jacob Jacobs;

               (n)  Certifications  from governmental  officials  evidencing the
                    legal  existence and corporate and tax good standing of each
                    of the Borrowers as of the most recent practicable date;

               (o)  Certified  copies of each of the  Borrowers'  Certificate of
                    Incorporation and Bylaws;

               (p)  Closing Certificate  executed by the chief financial officer
                    of  each  of the  Borrowers  substantially  in the  form  of
                    Exhibit D thereto;

               (q)  Waiver  from  each  of  the  Borrowers'  landlords  in  form
                    satisfactory to the Agent;

               (r)  Payout  Letters  from The  Bank of New  York  and any  other
                    financial  institutions  currently  lending to the Borrowers
                    which  were  listed on Exhibit B thereto,  and  delivery  of
                    discharges,  releases and terminations of all existing liens
                    of any nature on the  Collateral,  except such liens as were
                    expressly  permitted  by  the  terms  of the  Original  Loan
                    Agreement; and

               (s)  Borrowing Base Certificate.

               4.1.2 The representations  and warranties  contained in Section 3
shall be true and accurate in all material respects on and as of the date of the
initial  Revolving  Loan, the Borrowers shall have performed and complied in all
material  respects with all covenants and conditions  required in this Agreement
to be performed or complied  with by them prior to the making of such Loan,  and
no event shall have occurred and be continuing and no condition  shall exist, or
would  result from the Loans to be made on the date  hereof or the  transactions
contemplated hereby, which would constitute,  or with the passage of time or the
giving of notice, or both, would constitute, an Event of Default.



                                       27

<PAGE>



               4.1.3 The  Borrowers  shall  have  provided  the Agent  with such
additional instruments,  certificates, opinions and other documents as the Agent
or its counsel shall reasonably request.

               4.1.4 There shall not have been any  material  adverse  change in
any  of  the  Borrowers'   business,   properties  or  condition  (financial  or
otherwise).

               4.1.5 The Borrowers  shall have  reimbursed  the Agent for all of
the fees and disbursements of legal counsel to the Agent,  which shall have been
incurred by the Agent in connection with the preparation, negotiation, execution
and delivery of this Agreement and the closing of the transactions  contemplated
hereby.

           4.2 Conditions to all Revolving  Loans. The obligation of the Lenders
to make any Revolving Loan under this Agreement is subject to the fulfillment to
the satisfaction of the Agent  immediately  prior to or  contemporaneously  with
such Revolving Loan of each of the following conditions:

               4.2.1  The  representations  and  warranties  contained  in  this
Agreement or otherwise made in writing by or on behalf of the Borrowers pursuant
hereto or in connection with the transactions  contemplated hereby shall be true
and correct in all  material  respects at the time of each such  Revolving  Loan
(except for representations and warranties limited as to time or with respect to
a specific  event,  which  representations  and warranties  shall continue to be
limited to such time or event) with and without  giving  effect to the Revolving
Loans to be made at such time and the application of the proceeds  thereof.  The
Agent  may  without  waiving  this  condition  consider  it  fulfilled,   and  a
representation  by each of the  Borrowers  to such  effect  made,  if no written
notice to the contrary,  dated the date of such Revolving Loan, is received from
the  Borrowers.  In the event  that the  Borrowers  submit a  written  notice as
contemplated by the preceding sentence, the conditions set forth in this Section
4.2.1 will be considered fulfilled if such notice specifies in reasonable detail
the  exceptions  to the  representations  and  warranties as of the date of such
Revolving Loan, the exceptions as stated in such notice are  satisfactory to the
Agent and the Agent so notifies the Borrowers.

               4.2.2 At the time of each such Revolving Loan:

               (a)  the  Borrowers  shall have  performed  and  complied  in all
                    material   respects  with  all   agreements  and  conditions
                    contained  in this  Agreement  required to be  performed  or
                    complied with by it prior to or at such time;

               (b)  no condition or event that  constitutes  an Event of Default
                    or that,  after  notice  or  lapse  of time or  both,  would
                    constitute  an Event of Default  shall have  occurred and be
                    continuing; and


                                       28

<PAGE>



               (c)  there  shall  have been no  material  adverse  change in the
                    condition  (financial or otherwise),  business or properties
                    of any of the Borrowers since December 31, 1996.

           4.3 Conditions to Restatement  and Amendment.  The willingness of the
Lenders to enter into this Loan Agreement is subject to the receipt by the Agent
and certain of the Lenders,  as specified  below,  of the  following in form and
substance satisfactory to the Agent and such Lenders:

                     (a) Each of the Lenders  shall have  received a Credit Note
           substantially  in the form of Exhibit A to this  Agreement  signed by
           the Borrowers;

                     (b) The Agent  shall  have  received  amendments  to and/or
           restatements  of the  Subsidiary  Tie-In  Agreement  and  the  Pledge
           Agreement.

                     (c) The Agent shall have  received the Restated and Amended
           Limited Guaranties of even date herewith,  from Victor Jacobs, Herman
           Jacobs  and  Jacob  Jacobs   (collectively  the  "Guarantors")   (the
           "Guaranties").

                     (d) The  Agent  shall  have  received  certified  copies of
           resolutions of each Borrower's  respective Boards of Directors,  each
           Borrower's  charters  and  by-laws,  and a list  of  each  Borrower's
           corporate  officers with specimen  signatures,  in sufficient numbers
           for itself and each of the Lenders,  such resolutions  evidencing the
           due  authorization  of this  Agreement  and the entering  into of the
           transactions contemplated hereby;

                     (e) The Agent shall have received a favorable legal opinion
           addressed  to the Agent and each of the Lenders  from  Parker  Chapin
           Flattau  & Klimpl,  LLP,  counsel  to the  Borrowers,  in  sufficient
           quantities for itself and each of the other Lenders;

                     (f) The  Agent  shall  have  received  certifications  from
           governmental  officials  evidencing the legal existence and corporate
           good  standing  of  each  of  the  Borrowers  as of the  most  recent
           practicable date;

                     (g) The Agent  shall  have  received a Third  Restated  and
           Amended Closing  Certificate  executed by the Chief Financial Officer
           of each of the  Borrowers  substantially  in the  form of  Exhibit  D
           hereto,  in  sufficient  numbers  for  itself  and each of the  other
           Lenders;

                     (h)  the  Borrowers   shall  have  provided  to  the  Agent
           certification  from  governmental  officials  evidencing the tax good
           standing  of each of the  Borrowers  in the State of New York and, to
           the  extent   incorporated  or  qualified  to  do  business  therein,
           California; and


                                       29

<PAGE>



                     (i) The  Borrowers  shall have provided the Agent with such
           additional instruments, certificates and other documents as the Agent
           shall reasonably request;

           4.4  Heter  Iska.  This  Agreement  is being  entered  into by BLT in
accordance with BLT's heter iska.

           SECTION 5.  COVENANTS.

           During the term of this Agreement and so long as any  Indebtedness of
the Borrowers in respect of any Loan or any Obligation remains outstanding:

           5.1 Financial Reporting.  The Borrowers shall furnish to the Agent in
sufficient copies for distribution to each of the Lenders:

                     (i) as soon as available to the Borrowers, but in any event
           within  90  days  after  each  fiscal   year-end,   consolidated  and
           consolidating  balance  sheets of the  Borrowers  separating  out the
           Parent and its Subsidiaries on the one hand from Distributors and its
           Subsidiaries  on the  other  hand,  as at the  end  of,  and  related
           consolidated  and  consolidating   statements  of  income,   retained
           earnings and cash flow for,  such year  prepared in  accordance  with
           GAAP and, in the case of such consolidated  statements,  certified by
           the  Borrowers'  Accountants;  and  concurrently  with such financial
           statements,  a written statement by the Borrowers'  Accountants that,
           in the making of the audit  necessary  for their  report and  opinion
           upon such  financial  statements,  they have obtained no knowledge of
           any Event of  Default,  or  knowledge  of any event  which,  with the
           passage of time, the giving of notice,  or both, will constitute such
           Event of Default, or, if in the opinion of such accountant such Event
           of  Default or event  exists,  they shall  disclose  in such  written
           statement the nature and status thereof;

                     (ii) as  soon as  available  to the  Borrowers,  but in any
           event  within 45 days  after the end of each  fiscal  quarter  of the
           Borrowers  consolidated  and  consolidating  balance  sheets  of  the
           Borrowers  separating out the Parent and its  Subsidiaries on the one
           hand from  Distributors and its Subsidiaries on the other hand, as at
           the end of, and related consolidated and consolidating  statements of
           income,  retained earnings and cash flow for, the portion of the year
           then  ended,  for the  fiscal  quarter  then ended and for the twelve
           months then ended,  prepared in accordance with GAAP and, in the case
           of such consolidated statements, certified by the principal financial
           officer of each of the Borrowers;

                     (iii)  promptly  as they become  available,  a copy of each
           report (including any so-called  management letters) submitted to any
           of the Borrowers or any  Subsidiary by independent  certified  public
           accountants in connection with each annual audit of the books of such
           Borrower or such Subsidiary by such accountants or in connection with
           any


                                       30

<PAGE>



           interim audit thereof  pertaining to any phase of the business of the
           Borrowers or any Subsidiary;

                     (iv) promptly as they become available,  copies of all such
           financial  statements,  proxy  material  and  reports  as  any of the
           Borrowers  or any  Subsidiaries  shall send to or make  available  to
           stockholders  or holders of any  Indebtedness of any of the Borrowers
           or any  Subsidiaries or shall file with the United States  Securities
           and Exchange Commission,  or announcements made to the general public
           by any of the Borrowers or any Subsidiary;

                     (v)  from  time to  time,  such  other  financial  data and
           information  about any of the  Borrowers,  any  Subsidiaries  and the
           Collateral as the Agent may reasonably request;

                     (vi)   concurrently   with  each   delivery  of   financial
           statements  pursuant  to clause (i) and clause  (ii) of this  Section
           5.1, a report in substantially the form of Exhibit E hereto signed on
           behalf of the Borrowers by the chief financial officer of each of the
           Borrowers;

                     (vii) within 60 days prior to the  beginning of each fiscal
           year,  consolidated and  consolidating  projections for the Borrowers
           separating out the Parent and its  Subsidiaries  on the one hand from
           Distributors  and its  Subsidiaries  on the other hand,  for the next
           three  fiscal  years  beginning  with  such  fiscal  year,  including
           projected balance sheets, income statements, cash flow statements and
           such other statements as the Agent may reasonably request and in form
           and  substance  satisfactory  to the Agent,  all  prepared on a basis
           consistent with the financial statements required by clause (i);

                     (viii) as soon as available to the  Borrowers,  reports (in
           form  satisfactory  to the Agent) of the value of the Borrowing  Base
           including  without  limitation (a) Account  Receivable  reports daily
           within one Business Day; (b) Inventory reports monthly within fifteen
           (15)  Business  Days  of the end of each  calendar  month  (provided,
           however,  such reports shall be provided semi-monthly as of the first
           and  fifteenth  of each month  within  fifteen days of each such date
           during any period in which any Overadvance remains outstanding);  and
           (c) Account  Receivable  aging reports monthly within fifteen days of
           the end of each month; and

                     (ix) for the  purposes of  computing  the  Borrowing  Base,
           information adequate to identify Inventory and Accounts Receivable at
           times and in form and substance as may be requested by the Agent, and
           if requested by the Agent,  accompanied by pledges or designations of
           Inventory and agings or assignments of Accounts in form and substance
           satisfactory to the Agent,  which  assignments  shall give Agent full
           power to collect,  compromise  or  otherwise  deal with the  assigned
           Accounts as the sole owner thereof on behalf of the Lenders; and



                                       31

<PAGE>



                     (x)  quarterly  reports  of sales  and gross  profits  on a
           divisional basis for the immediate preceding quarter by the thirtieth
           day of the calendar month following the end of such quarter.

           5.2 Conduct of Business.  Each of the Borrowers  hereby covenants and
agrees,  jointly and severally,  for itself individually and on behalf of all of
the Borrowers individually and taken as a whole, that it and they will:

                     (i) duly observe and comply in all material  respects  with
           all  applicable  laws  and  all   requirements  of  any  governmental
           authorities   relative  to  its  corporate   existence,   rights  and
           franchises,  to the conduct of its  business  and to its property and
           assets;  and will  maintain  and keep in full  force and  effect  all
           licenses and permits necessary to the proper conduct of its business,
           except  where the failure to do so would not have a material  adverse
           effect  on  the  business,  properties  or  condition  (financial  or
           otherwise)  of the Borrowers and any  Subsidiaries,  individually  or
           taken as a whole; and

                     (ii)  maintain  its  and  their  corporate   existence  and
           existing corporate  structure,  and remain or engage in substantially
           the same  business  as the  Business  and in no  unrelated  business,
           except that the  Borrowers  may,  upon notice to the Agent,  withdraw
           from any business activity which their respective Boards of Directors
           deem unprofitable or unsound.

           5.3 Maintenance  and Insurance.  The Borrowers will maintain and keep
their properties in good repair,  working order and condition,  and from time to
time make all needful and proper repairs, renewals, replacements,  additions and
improvements  thereto so that their business may be properly and  advantageously
conducted at all time.  The Borrowers at all times will maintain  insurance,  in
such amounts (including,  without limitation,  so-called  "all-risk" coverage at
replacement value and "broad form" liability coverage), against such hazards and
liabilities  and for such purposes as the Agent shall determine is reasonable to
insure the value of the  Collateral  and as is  customary  in the  industry  for
companies of established  reputation  engaged in the same or similar  businesses
and owning or  operating  similar  properties.  The  Agent,  as agent for and on
behalf of the Lenders,  shall be named as loss payee and additional  insured and
shall be given 30 days advance notice of any cancellation of or failure to renew
insurance.  If the  Borrowers  fail to  provide  or  cause to be  provided  such
insurance,  the Agent,  in its sole  discretion,  may provide such insurance and
charge the cost to the Loan Account or to any of the Borrowers' deposit accounts
with any of the Lenders. Any payment not recovered from the Borrowers shall bear
interest at the then rate of interest  under the Credit  Notes from such time as
the Agent incurs such expense.  Neither the Agent nor the Lenders shall,  by the
fact of the Agent's approving, disapproving,  accepting, obtaining or failing to
obtain any such insurance, incur any liability for the form or legal sufficiency
of insurance contracts,  solvency of insurance companies or payment of lawsuits,
and the Borrowers hereby expressly assume full joint and several  responsibility
therefor and liability, if any, thereunder.


                                       32

<PAGE>



           5.4  Taxes.  The  Borrowers  will pay or cause to be paid all  taxes,
assessments  or  governmental  charges  on or  against  any of  them,  or  their
properties  prior  to such  taxes  becoming  delinquent;  except  for  any  tax,
assessment  or charge  (other than any charge for  environmental  cleanup  costs
referred to in Section  5.22) which is being  contested  in good faith by proper
legal  proceedings  and  with  respect  to which  adequate  reserves  have  been
established and are being maintained.

           5.5  Limitation of  Indebtedness.  None of the Borrowers will create,
incur,  assume or suffer to exist, or in any manner become or be liable directly
or indirectly with respect to, any  Indebtedness  except:  (i) the  Obligations;
(ii)  Indebtedness  existing  on the  date of this  Agreement  and set  forth on
Exhibit C hereto;  (iii)  Indebtedness  for the purchase price of capital assets
incurred in the  ordinary  course of  business,  to the extent such  purchase is
permitted  by  Section  5.10;  (iv)  Indebtedness  for  taxes,   assessments  or
governmental  charges to the extent that payment  therefor shall at the time not
be required to be made in accordance  with Section 5.4; and (v)  Indebtedness on
open account for the purchase price of services, materials and supplies incurred
by any of the  Borrowers in the ordinary  course of business (not as a result of
borrowing),  so long as all of such open account  Indebtedness shall be promptly
paid and discharged  when due or in conformity  with  customary  trade terms and
practices,  except  for any  such  open  account  Indebtedness  which  is  being
contested in good faith by the Borrowers, as to which adequate reserves required
by GAAP  have  been  established  and are  being  maintained  and as to which no
encumbrance has been placed on any property of any of the Borrowers.

           5.6  Guaranties.  None of the Borrowers  shall become or be liable by
way of guaranty, surety or other arrangement for the Indebtedness or obligations
of any nature or kind of any other Person (including any Subsidiary), except for
endorsement of instruments for collection in the ordinary course of business.

           5.7 Restrictions on Liens. None of the Borrowers will create,  incur,
assume or suffer to exist any mortgage, pledge, security interest, lien or other
charge  or  encumbrance  including  the  lien or  retained  security  title of a
conditional  vendor  ("Encumbrances")  upon or with  respect to any  property or
assets, real or personal, of any such Persons, or assign or otherwise convey any
right to receive income, except:

                     (i) Encumbrances existing on the date of this Agreement and
           set forth in the  Disclosure  Letter,  including  liens in connection
           with the Lease Financing Facility; or

                     (ii)  liens  for  taxes,   fees,   assessments   and  other
           governmental  charges to the extent  that  payment of the same is not
           required in accordance with the provisions of Section 5.4; or

                     (iii)     Encumbrances in favor of the Agent; or


                                       33

<PAGE>



                     (iv)  Encumbrances  securing  Indebtedness for the purchase
           price of capital assets to the extent such  Indebtedness is permitted
           by Section  5.5 (iii),  provided  that (a) each such  Encumbrance  is
           given solely to secure the purchase price of such property,  does not
           extend to any other  property and is given at the time of acquisition
           of the property,  and (b) the  Indebtedness  secured thereby does not
           exceed the  lesser of the cost of such  property  or its fair  market
           value at the time of acquisition; or

                     (v) liens of mechanics, laborers, materialmen, carriers and
           warehousemen arising by operation of law to secure payment for labor,
           materials,  supplies or services  incurred in the ordinary  course of
           the Borrowers'  business,  but only if the payment  thereof is not at
           the time  required  and such  liens  do not,  individually  or in the
           aggregate,  materially detract from the value or limit the use of any
           property subject thereto; or

                     (vi) deposits made in the ordinary course of the Borrowers'
           business in  connection  with  workmen's  compensation,  unemployment
           insurance, social security and other similar laws.

           5.8 Merger, Acquisitions and Purchase and Sale of Assets. None of the
Borrowers will consolidate or merge with or into any other  corporation or other
entity,  will  acquire  the assets or stock of any entity nor will sell,  lease,
transfer or  otherwise  dispose of any  portion of its assets  other than in the
ordinary course of business.

           5.9  Investments  and Loans.  None of the Borrowers will make or have
outstanding  at any  time  any  investments  in or  loans  to any  other  Person
(including any Subsidiary  other than one of the  Borrowers),  whether by way of
advance,  guaranty,  extension  of credit,  capital  contribution,  purchase  of
stocks,  notes,  bonds or other  securities  or  evidences of  Indebtedness,  or
acquisition  of limited or general  partnership  interests,  other than:  (i) in
direct obligations of the United States of America,  maturing within one year of
their issuance;  (ii) in time certificates of deposit or repurchase  agreements,
maturing  within one year of their  issuance,  from  banks in the United  States
having capital,  surplus and undivided profits in excess of $200,000,000;  (iii)
in short term  commercial  paper with the highest  rating by Moody's or Standard
and Poor's  rating  services  and issued by  corporations  headquartered  in the
United  States,  in  currency  of the United  States of  America;  (iv) stock of
Subsidiaries owned on the date hereof as set forth in the Disclosure Letter; and
(v) other short term loans to any other Person  (subject to the terms of Section
5.21 hereof) in aggregate  principal amount not in excess of $250,000 at any one
time outstanding.

           5.10      Capital Expenditures.

           (a) The Borrowers  shall not make any Capital  Expenditures in excess
of $2,000,000  in the  aggregate  during any fiscal year period of the Borrowers
from and after the date hereof,  commencing with the yearly period  beginning on
October 1, 1997: (i) except with the prior


                                       34

<PAGE>



written  consent of the Agent,  and (ii) other than up to  $2,010,500 in Capital
Expenditures contemplated by the Lease Financing Facility.

           (b) Notwithstanding any other provisions in connection with the Lease
Financing  Facility,  the Agent and the Lenders  acknowledge and agree that both
the Agent and the Lenders  have no  security  interest,  and hereby  release any
security  interest  that may have been held,  in the  property  described in the
Lease Financing Facility.

           5.11 Sale of Notes. The Borrowers shall not sell, discount or dispose
of any note,  instrument,  account,  or other obligation owing to the Borrowers,
except to the Agent.

           5.12      Dividends, etc.

           (a) None of the  Borrowers  shall pay,  make or  declare  any cash or
property  dividend or distribution to any Person who holds an equity interest in
any of the  Borrowers,  whether  evidenced by a security or not,  other than (i)
regular  compensation  and bonuses  paid to  employees  of the  Borrowers in the
ordinary course of business  consistent with past practices,  and (ii) dividends
payable solely in common stock of any of the Borrowers.

           (b) None of the Borrowers will purchase,  redeem, retire or otherwise
acquire  for  value  any of  their  capital  stock,  whether  now  or  hereafter
outstanding,  or any options,  warrants or similar rights to purchase such stock
or any security convertible into or exchangeable for such stock.

           5.13 ERISA Compliance. None of the Borrowers and their Affiliates, if
any,  no  Pension  Plan,  Plan or  trust  created  thereunder,  and no  trustee,
administrator or fiduciary  thereof shall engage in any Prohibited  Transaction;
none of the Borrowers and their  Affiliates and no Pension Plan or trust created
thereunder  shall  incur any  "accumulated  funding  deficiency"  (as defined in
Section  412 of the Code and Section  302 of ERISA)  whether or not  waived,  or
shall fail to satisfy any additional  funding  requirements set forth in Section
412 of the Code and  Section  302 of  ERISA;  none of the  Borrowers  and  their
Affiliates,  no trustee thereof and no administrator or fiduciary  thereof shall
terminate any Pension Plan in a manner which could result in the imposition of a
lien on any  property of any of the  Borrowers or any of their  Affiliates;  and
each Plan and Pension Plan shall comply in all material respects with ERISA.

           5.14      Pension Plans.

           (a) With respect to any Pension Plan, the Borrowers  shall,  or shall
cause their Affiliates to:

                     (i) fund on a timely basis each Pension Plan as required by
                     the  provisions  of Section 412 of the Code and Section 302
                     of ERISA;


                                       35

<PAGE>



                     (ii) cause each Pension  Plan to pay all benefits  when due
                     in accordance with applicable law; and

                     (iii)  furnish  to the  Agent  (A)  written  notice  of the
                     occurrence  of a Reportable  Event (as such term is defined
                     in Section 4043 of ERISA),  given  within  thirty (30) days
                     after any of the  Borrowers or any  Affiliate  knows or has
                     reason to know that a Reportable  Event has  occurred  with
                     respect  to a Pension  Plan;  (B) a copy of any  request or
                     waiver of the  funding  standards  or an  extension  of the
                     amortization periods required under Section 412 of the Code
                     and  Section  302 of ERISA,  such copy to be  furnished  no
                     later  than the date of  submission  of the  request to the
                     Department of Labor or to the Internal Revenue Service (the
                     "IRS"),  as the case may be;  (C) a copy of any  notice  of
                     intent  to  terminate  any  Pension  Plan  such  copy to be
                     furnished no later than the date of  submission to the PBGC
                     or, if earlier,  the date on which those  participating  in
                     the Pension Plan are notified of the intended  termination;
                     and (D) notice that any of the Borrowers or any  Affiliate,
                     will or may  incur  any  liability  to or on  account  of a
                     Pension Plan under Section 4062,  4063,  4064, 4201 or 4204
                     of  ERISA,  such  notice to be given  within  ten (10) days
                     after any of the  Borrowers or any  Affiliate  knows or has
                     reason to know  thereof.  Any notice to be  provided to the
                     Agent under this Section shall include a certificate of the
                     chief financial  officer of the Borrower giving such notice
                     setting forth details as to such occurrence and the action,
                     if any, which such Borrower or the Affiliate is required or
                     proposes to take,  together  with any  notices  required or
                     proposed  to  be  filed  with  or  by  such  Borrower,  any
                     Affiliate,  the  PBGC,  the IRS,  the  trustee  or the plan
                     administrator with respect hereto.

           (b) The Borrowers  shall furnish to the Agent,  no later than fifteen
(15) days after the date of filing,  a copy of the annual report of each Pension
Plan or Plan (Form 5500 or  comparable  form)  required to be filed with the IRS
and/or the Department of Labor.

           (c)  Promptly  after the adoption of any Plan or Pension Plan subject
to ERISA, or of any amendment to any Pension Plan which results in a significant
underfunding  within the meaning of Section  401(a)(29)  of the Code and Section
307 of ERISA,  the Borrowers  shall notify the Agent of such adoption and of the
vesting and funding schedules and other principal provisions thereof.

           5.15 Notification of Default. Upon becoming aware of the existence of
any  condition or event which would cause an Event of Default,  or any condition
or event  which  would upon notice or passage of time,  or both,  constitute  an
Event of Default,  the Borrowers  shall  promptly give the Agent written  notice
thereof  specifying  the nature and  duration  thereof  and the action  being or
proposed to be taken with respect thereto.

           5.16 Notification of Material Litigation, The Borrowers will promptly
notify  the  Agent  in  writing  of  any  litigation  or  of  any  investigative
proceedings of a governmental agency or


                                       36

<PAGE>



authority  commenced  or  threatened  against  it or  any  of  their  respective
Subsidiaries  which would or might be materially  adverse to the business or the
financial condition of any of the Borrowers or the Business.

           5.17  Notification  of Material  Adverse  Change.  The Borrowers will
notify the Agent of any  occurrence,  condition  or event  affecting  any of the
Borrower or any Subsidiary  which might  constitute a material adverse change in
or which might have a material adverse effect on the Collateral, the Business or
the  business,  properties  or condition  (financial or otherwise) of any of the
Borrowers.

           5.18 Inspection by the Agent.  The Borrowers will permit the Agent or
its designees, at any reasonable time during normal business hours and from time
to time,  to visit  and  inspect  the  properties  of the  Borrowers  and  their
Subsidiaries,  if any, to examine and make copies of and take abstracts from the
books and  records of the  Borrowers  and any  Subsidiaries  and to discuss  the
affairs,  finances  and  accounts of the  Borrowers  and any  Subsidiaries  with
appropriate officers.  Without in any way limiting the foregoing,  the Borrowers
understand  that the Agent  intends to conduct  field audits of the Borrowers at
least  three (3) times per year.  The  Borrowers  shall also permit the Agent to
arrange for verification of Accounts  Receivable,  under reasonable  procedures,
directly with account debtors or by other methods.

           5.19  Maintenance  of Books  and  Records.  The  Borrowers  and their
Subsidiaries,  if any, will keep adequate  books and records of account in which
true and complete  entries  will be made  reflecting  all of their  business and
financial  transactions,  and such entries will be made in accordance  with GAAP
and  applicable  law  including,   without  limitation,  laws  with  respect  to
questionable, improper or corrupt payments.

           5.20 Use of  Proceeds.  The  Borrowers  will use the  proceeds of the
Loans solely for the working capital needs of the Borrowers.

           5.21 Transactions  with Affiliates.  The Borrowers will not, and will
not permit their Subsidiaries, if any, to, directly or indirectly enter into any
purchase,  sale,  lease or other  transaction  with any Affiliate  except in the
ordinary course of business on terms that are no less favorable to the Borrowers
than those  which might be obtained  at the time in a  comparable  arm's  length
transaction  with  any  Person  who is not an  Affiliate,  other  than  loans to
employees  of the  Borrowers  (other  than  the  Guarantors)  not  exceeding  in
aggregate principal amount $200,000 at any one time outstanding.

           5.22      Environmental Regulations.

           (a) The Borrowers  will, and will cause their  Subsidiaries,  if any,
to, comply in all material  respects with all  applicable  laws and  regulations
relating to pollution control,  hazardous  materials and hazardous wastes in all
jurisdictions  in  which  any of them  operates  now or in the  future,  and the
Borrowers will, and will cause their Subsidiaries, if any, to, comply in all


                                       37

<PAGE>



material  respects with all such laws and regulations  that may in the future be
applicable to the Business, the Borrowers, the Subsidiaries and their properties
and assets.

           (b) If any of  the  Borrowers  shall  (i)  receive  notice  that  any
violation of any federal,  state or local  environmental  law or regulation  may
have been  committed  or is about to be  committed  by a Borrower  or any of its
Subsidiaries,  (ii) receive notice that any administrative or judicial complaint
or order has been filed or is about to be filed against a Borrower or any of its
Subsidiaries  alleging a violation of any federal,  state or local environmental
law or regulation or requiring a Borrower or such  Subsidiary to take any action
in connection  with the release of toxic or hazardous  wastes or materials  into
the  environment  or (iii)  receive any notice from a federal,  state,  or local
governmental  agency or private  party  alleging  that a Borrower  or any of its
Subsidiaries  may be  liable or  responsible  for any  costs  associated  with a
response to or cleanup of a release of hazardous  wastes or  materials  into the
environment or any damages caused thereby, the Borrowers shall provide the Agent
with a copy of such notice  within  five (5)  business  days after a  Borrower's
receipt thereof.  Within fifteen (15) business days after a Borrower has learned
of the enactment or  promulgation of any federal,  state or local  environmental
law/or  regulation  which  may  result  in any  material  adverse  change in the
business,  properties  or  condition  (financial  or  otherwise)  of  any of the
Borrowers, the Borrowers shall provide the Agent with notice thereof.

           (c) From and after the  Agent's  request,  not later than thirty (30)
days following the end of each calendar quarter,  the Borrowers shall deliver to
the  Agent  a  written  report,  in a  form  and  with  such  specificity  as is
satisfactory to the Agent,  describing the Borrowers'  actions taken during such
calendar quarter to assure their compliance with this Section and all applicable
environmental laws and regulations (including the receipt of any notice that any
administrative  or judicial  complaint or order has been filed or is about to be
filed  against  any of the  Borrowers,  regardless  of  whether  such  notice is
required to be delivered by the Borrowers pursuant to subparagraph (b) above) as
well as the status of any pending  environmental  matters described in Exhibit B
attached hereto.

           5.23 Fiscal Year. The Borrower and their Subsidiaries,  if any, shall
have  fiscal  years  ending on March 31 of each year and shall not  change  such
fiscal years without the prior written consent of the Agent.

           5.24 Loss or Depreciation of Collateral. In the event that any of the
following  events  alone  or in the  aggregate  has  an  adverse  impact  on the
Borrowers  in  excess  of  $100,000,   the  Borrowers  shall  notify  the  Agent
immediately  of the  occurrence  of each of the  following  events:  (i) loss or
depreciation  in  value  of  Base  Inventory  and  the  amount  of the  loss  or
depreciation;  (ii) rejection,  return, repossession or loss of any goods giving
rise to any Base Account; (iii) damage to any such goods; (iv) any request by an
account debtor for credit or adjustment of an Account; (v) any adjustment by any
of the  Borrowers on the amount  owing on an account;  (vi) any  merchandise  or
other dispute;  (vii) any other event  affecting Base Inventory or Base Accounts
or the  value  or  amount  thereof.  All loss or  depreciation  in value of Base
Inventory shall be


                                       38

<PAGE>



immediately  reflected  in the Net  Security  Value of Base  Inventory,  and all
payments on Base Accounts and all adjustments and credits with respect  thereto,
whether unilateral,  negotiated or otherwise,  shall be immediately reflected in
the Net Outstanding Amount of Base Accounts.

           5.25  Consolidated  Tangible Net Worth.  The Borrowers  will maintain
Consolidated  Tangible Net Worth of not less than  $41,700,000  plus one-half of
the Net Income  (greater than zero) of the  Borrowers for each calendar  quarter
ending after March 31, 1997,  plus 75% of all  additional  capital paid into the
Borrowers on account of any sale of capital  stock or the exercise of any option
or warrant or otherwise.

           5.26  Interest   Coverage.   The  Borrowers  will  not  permit  their
respective ratios of Operating Cash Flow divided by Total Interest at the end of
each  calendar  quarter  following  the  date  hereof  for  the  period  of four
consecutive calendar quarters then ending to be less than 1.50 to 1.

           5.27  Leverage.  The  Borrowers  will not  permit  the ratio of Total
Liabilities  divided by  Consolidated  Tangible  Net Worth as of the end of each
fiscal quarter to be more than 3.00 to 1.

           5.28 Joint and  Several  Liability.  Each of the  Borrowers  shall be
jointly and  severally  liable for all  Obligations  and any other  liability or
obligations  of any of the  Borrowers  to the Agent or the  Lenders  under  this
agreement.  The Agent may, on behalf of the Lenders,  pursue any remedies at law
or in equity,  or exercise or enforce  any rights  hereunder  against any of the
Borrowers or any group of the Borrowers in its unrestricted  discretion  without
any  obligation to pursue any other  remedies or rights against any of the other
Borrowers.

           5.29  Interest  Rate  Protection.  The  Borrowers at their option may
maintain  in  effect  interest  rate  protection  arrangements,  in form  and in
substance satisfactory to the Agent and with a counterparty  satisfactory to the
Agent,  at all times from the date hereof to the Maturity  Date, or such earlier
date upon which the Loan and this Agreement are terminated.  The Borrowers shall
not,  without  approval  from the Agent,  modify,  terminate  or  transfer  such
arrangements during such period.

           SECTION 6.  SECURITY.

           6.1 Security Interest. As security for the payment and performance of
all  Obligations  (including  without  limitation the Loans,  other advances and
Letters of Credit), the Agent, as agent for and on behalf of the Lenders,  shall
have and each of the Borrowers  hereby grants to the Agent,  as agent for and on
behalf of the Lenders,  a continuing  security interest in all personal property
and  fixtures  of the  Borrowers  of every  kind and  description,  tangible  or
intangible,  whether now or hereafter  existing,  whether now owned or hereafter
acquired, and wherever located, including, but not limited to the following: all
Inventory of the Borrowers; all furniture,  fixtures and similar property of the
Borrowers;  all Machinery and  Equipment of the  Borrowers;  all accounts of the
Borrowers; all contract rights of the Borrowers; all other rights of the


                                       39

<PAGE>



Borrowers to the payment of money, including without limitation amounts due from
Affiliates,  tax refunds, and insurance proceeds;  all interest of the Borrowers
in goods as to which an Account shall have arisen; all files, records (including
without  limitation  computer  programs,   tapes  and  related  electronic  data
processing  software)  and  writings  of the  Borrowers  or in which  any of the
Borrowers  has an interest in any way relating to the  foregoing  property;  all
goods, instruments,  documents of title, policies and certificates of insurance,
securities,  chattel paper, deposits, cash or other property owned by any of the
Borrowers or in which any of the Borrowers has an interest  which are now or may
hereafter be in the possession of the Agent or any of the Lenders or as to which
the Agent or any of the  Lenders  may now or  hereafter  control  possession  by
documents  of  title or  otherwise;  all  general  intangibles  of the  Borrower
(including  without  limitation all patents,  trademarks,  trade names,  service
marks,  copyrights and applications for any of the foregoing;  all rights to use
patents,  trademarks,  trade names,  service marks and copyrights of any Person;
and  any  rights  of  the   Borrowers  to  retrieval   from  third   parties  of
electronically processed and recorded information pertaining to any of the types
of  collateral  referred  to in this  Section  6.1);  any other  property of the
Borrowers,  real or personal,  tangible or intangible, in which the Agent or any
of the Lenders now has or hereafter acquires a security interest or which is now
or may hereafter be in the  possession  of the Agent or any of the Lenders;  any
sums at any time  credited by or due from the Agent or any of the Lenders to any
of  the  Borrowers,  including  deposits;  and  proceeds  and  products  of  and
accessions to all of the foregoing.

           6.2 No  Other  Liens.  None  of the  Borrowers  shall  sell,  assign,
transfer,  set over  to,  or  grant a  security  interest  to any  Person  in or
otherwise encumber the property and sums described in Section 6.1, except (i) in
favor of the Agent or as otherwise specifically permitted in Section 5.7 of this
Agreement,  and (ii) the sale of Inventory and obsolete  machinery and equipment
in the ordinary course of business consistent with past practices.

           6.3 Location of Records and Collateral.  The Borrowers shall give the
Agent written  notice of each  location at which  Collateral is now or hereafter
kept and of each office of the  Borrowers at which the records of the  Borrowers
pertaining to Accounts  Receivable and contract rights are kept.  Except as such
notice is given or as is otherwise set forth on Exhibit B, all Collateral is and
shall  be  kept,  and  all  records  of the  Borrowers  pertaining  to  Accounts
Receivable  and  contract  rights  are and  shall  be  kept,  at the  Borrowers'
addresses as they appear at the beginning of this Agreement.

           6.4 Status of Collateral. At the time any Account, Inventory or other
property of the Borrowers becomes subject to a security interest in favor of the
Agent  hereunder,  one of the  Borrowers  shall be the lawful owner  thereof and
shall have good  right to pledge,  sell,  assign,  transfer  or grant a security
interest in the same to the Agent.  Each such Account  shall be a valid  Account
representing  indebtedness incurred by the account debtor for goods held subject
to delivery  instructions  or  theretofore  shipped or  delivered  pursuant to a
contract  of sale or for  services  theretofore  performed  by a Borrower in the
ordinary  course  of the  Borrowers'  business;  there  shall be no  setoffs  or
counterclaims  against the Account;  no  agreement  under which any goods may be
returned shall have been made with the account debtor except in the ordinary


                                       40

<PAGE>



course of business and consistent  with the Borrowers'  past  practices;  and no
agreement  under which any discount may be claimed shall have been made with the
account  debtor unless written notice has  theretofore  been or is  concurrently
given to the Agent.

           6.5 Name Change.  The Borrowers shall give the Agent thirty (30) days
prior written  notice of any change in the name or corporate  form of any of the
Borrowers or in the name under which the Business is transacted.

           6.6 Collection of Accounts Receivable.

           (a) Subject to the terms of Section 6.6(b),  until the Agent requests
that  debtors  on  Accounts  Receivable  be  notified  of the  Agent's  security
interest,  the Borrower shall continue to collect them.  Subject to the terms of
Section  6.6(b)  until the making of such a request,  the  Borrowers  shall hold
proceeds  received  from  collection  as trustee  for the Agent and the  Lenders
without  commingling  the same with other funds of the  Borrowers and shall turn
the same over to the  Agent,  as agent for and on behalf of the  Lenders,  or to
such bank as may be  approved  by the  Agent,  immediately  upon  receipt in the
identical  form  received.  The  Borrowers  shall,  at the  request of the Agent
(following the occurrence and during the  continuation  of an Event of Default),
notify the Account debtors of the security  interest of the Agent in any Account
and that payment thereof is to be made directly to the Agent,  and the Agent may
itself at anytime  (following the occurrence and during the  continuation  of an
Event of Default),  without  notice to or demand upon the  Borrowers,  so notify
account  debtors.  The  making  of such a  request  or the  giving  of any  such
notification shall not affect the duties of the Borrowers  described above or in
Section  6.6(b) with respect to proceeds of  collection  of Accounts  Receivable
received by the Borrowers.

           (b) The Borrowers hereby acknowledge that the Agent has requested and
hereby Borrowers notify their account debtors to pay all Accounts  directly into
a so called "lock box"  maintained with the Agent for application as provided in
Section 6.6(c).  This request and the giving of any such notification  shall not
affect the duties of the  Borrowers  described  above in Section  6.6(a) or this
Section  6.6(b) with respect to proceeds of  collection  of Accounts  Receivable
received by the Borrowers.

           (c) The Agent shall  credit the  proceeds of  collection  of Accounts
Receivable  received by the Agent to the Loan Account in respect of  outstanding
Loans and other  amounts  due,  such  credits  to be  entered  as of the  second
Business  Day  after  receipt  thereof  by the  Agent.  Such  credits  shall  be
conditional  upon final  payment in cash or solvent  credits of the items giving
rise to them. If any item is not so paid, the Agent, in its discretion,  whether
or not the item is returned, may either reverse any credit given for the item or
charge the amount of the item  against  the  deposits or other sums which may be
due to the Borrowers from the Agent or any Lender. Upon elimination of any debit
balance of the Loan Account, proceeds of collection and other receipts may then,
except as otherwise provided in Section 7.3, be credited to any deposit


                                       41

<PAGE>



account  which any of the  Borrowers may maintain with the Agent or, if there is
no such account, held pending instructions from the Borrowers.

           SECTION 7.  EVENTS OF DEFAULT; ACCELERATION.

           7.1 Any or all of the  Obligations  of the Borrowers to the Agent and
the Lenders shall, at the option of those Lenders whose  Commitment  Percentages
equal in the aggregate 60% or more of the Commitment Percentages held by all the
Lenders and  automatically  upon the  occurrence of any of the events of default
described in clauses (vi) or (vii) below, and  notwithstanding the provisions of
an instrument  evidencing an Obligation,  be immediately due and payable without
notice or demand upon the  occurrence and  continuation  of any of the following
events of default  (individually,  an "Event of  Default"):  (i)  default in the
payment or  performance,  when due or  payable,  of any  Obligation  (other than
Obligations  for which notice and an opportunity to cure are provided in Section
7.1(iv) hereof) by the Borrowers or by any endorser, guarantor or surety for any
Obligation,  or of any payment Obligation under any Letter of Credit application
or Letter of Credit issued by the Agent; (ii) the making by the Borrowers of any
misrepresentation  to the Agent and the Lenders  contained in this  Agreement or
otherwise, whether or not for the purpose of obtaining credit or an extension of
credit;  (iii)  failure by the Borrower to comply in every  material  respect or
maintain  material  compliance  with any  covenant set forth in Section 5 hereof
(other than Sections 5.1, 5.2, 5.3 (other than the failure to maintain insurance
as  required  by Section  5.3 or the  termination,  lapse or  expiration  of any
insurance  policy  required by Section 5.3 during any grace  period),  5.4, 5.5,
5.6,  5.9,  5.13,  5.14,  5.15,  5.16,  5.17,  5.19,  5.21 and  5.22);  (iv) the
Borrowers'  failure to comply in every  material  respect or  maintain  material
compliance with any one or more of the covenants set forth in Sections 5.1, 5.2,
5.3 (other than the failure to maintain  insurance as required by Section 5.3 or
unless any  insurance  policy  required by Section 5.3 will lapse,  terminate or
expire during any grace period),  5.4, 5.5, 5.6, 5.9, 5.13,  5.14,  5.15,  5.16,
5.17,  5.19,  5.21 and 5.22 which failure to comply shall  continue  uncured ten
Business Days after the officers of any of the Borrowers  have  knowledge or the
Borrowers receive written notice from the Agent of such failure; (v) issuance of
an  injunction  or  attachment  for an  aggregate  amount in excess of $250,000,
against  property of any of the Borrowers or any  endorser,  guarantor or surety
for any Obligation which is not dismissed or bonded,  to the satisfaction of the
Agent,  within  sixty (60) days  after  issuance;  (vi)  calling of a meeting of
creditors,  appointment  of a committee of creditors  or  liquidating  agents or
offering of a composition  or extension to creditors by, for or with the consent
or acquiescence of any of the Borrowers or any endorser, guarantor or surety for
an  Obligation;  (vii)  Insolvency  of  any of the  Borrowers  or any  endorser,
guarantor or surety for any  Obligation;  (viii) the  occurrence of any material
default under any agreement,  note or other instrument evidencing or relating to
any  obligation  of any of the  Borrowers  to any other Person or entity for the
payment of money; or (ix) any money judgment or judgments  aggregating in excess
of $750,000 are entered against any of the Borrowers or any endorser,  guarantor
or surety of any Obligation  which is not dismissed  within sixty (60) days; (x)
Victor Jacobs,  Herman Jacobs and Jacob Jacobs no longer owning in the aggregate
on a fully  diluted basis  capital  stock of the Parent  entitling  them to vote
greater than 50% of the votes attributable to the issued and outstanding voting


                                       42

<PAGE>



securities of the Parent,  or any two of them no longer being actively  involved
in the  management  of the Borrowers  because of death,  disability or any other
reason, or any one of them terminating his obligations  under, and in accordance
with the terms of, the Guaranty executed and delivered by him as contemplated by
Section  4.3  hereof;  or (xi) the  occurrence  of any  material  change  in the
condition or affairs  (financial or otherwise) of the Borrowers or any endorser,
guarantor or surety for any Obligation  which causes the Agent in its reasonable
judgment to deem itself and the Lenders insecure.

           7.2 The term  "obligation of any of the Borrowers to any other Person
or entity" as used in Section 7.1 includes the  liabilities  and  obligations of
the  Borrowers  to any  other  Person  or  entity  to the same  extent as if the
definition of "Obligations" set forth in Section 1 were recited here with "Agent
and the Lenders" changed to "any other Person or entity."

           7.3 Upon the  occurrence  of any  Event  of  Default  and at any time
thereafter (such default not having been cured),  the Agent shall have the right
to take immediate  possession of the Collateral,  and for that purpose the Agent
may, so far as the Borrowers can give authority therefor enter upon any premises
on which Collateral may be situated and remove the same therefrom. The Borrowers
waive  demand and notice  with  respect  to and  assent to any  repossession  of
Collateral.  The Agent may dispose of  Collateral in any order and in any manner
it  chooses  and may  refrain  from  the  sale  of any  real  property,  held as
Collateral,  until the sale of personal property. Except for Collateral which is
perishable  or  threatens  to  decline  speedily  in value or which is of a type
customarily sold on a recognized  market,  the Agent shall give to the Borrowers
at least ten (10) Business  Days' prior written  notice of the time and place of
any public sale of Collateral or of the time after which any private sale or any
other  intended  disposition  is to be made.  The  residue  of any  proceeds  of
collection or sale, after satisfying all Obligations in such order of preference
as the  Agent  may  determine  and  making  proper  allowance  for  interest  on
Obligations  not then due, shall be credited to any deposit account which any of
the Borrowers may maintain with the Agent, or, if there is no such account, held
pending  instructions from the Borrowers.  The Borrowers shall remain liable for
any deficiency.

           7.4 The Agent may at any time in its sole discretion  (whether or not
an Event of Default has  occurred)  transfer any  securities  or other  property
constituting Collateral into its own name or that of its nominee and receive the
income  thereon and hold the same as  security  for  Obligations  or apply it on
principal or interest due on Obligations. Insofar as Collateral shall consist of
Accounts  or  instruments,  the Agent  may,  without  notice to or demand on the
Borrowers,  demand  and  collect  such  Collateral  as the Agent may  determine,
whether or not  Obligations  are then due and whether or not an Event of Default
has  occurred,  and for the purpose of realizing the Agent's  rights  therein as
Agent for and on behalf of the Lenders, the Agent may receive,  open and dispose
of mail addressed to a Borrower and endorse notes, checks, drafts, money orders,
documents  of title or other  evidences  of payment,  shipment or storage or any
form of  Collateral  on behalf of and in the name of any of the  Borrowers.  The
powers conferred on the Agent by this Section are solely to protect the interest
of the Agent and the  Lenders  and shall not  impose  any duties on the Agent to
exercise any powers.


                                       43

<PAGE>



           7.5 In addition to all other rights and remedies  provided  hereunder
or by law,  the Agent  and the  Lenders  shall  have in any  jurisdiction  where
enforcement  hereof is sought the rights and  remedies of a secured  party under
the Uniform Commercial Code of Massachusetts.

           SECTION 8.  SET OFF; PARTICIPATIONS.  Regardless  of the  adequacy of
Collateral:

           8.1 Any  deposits  or other sums at any time  credited by or due from
the Agent or any Lender to any of the Borrowers may at any time be applied to or
set off against any Obligation on which any Borrower is primarily liable and may
at or after the maturity thereof be applied to or set off against Obligations on
which a Borrower is secondarily liable.

           8.2 The  Borrowers  invite  any bank or other  financing  institution
which may consider  investing or participating in the Loans (each such financing
institution  being referred to in this Section as a "Participant")  to rely upon
all of the  representations,  warranties,  covenant and other provisions of this
Agreement, the Credit Notes and the other agreements,  instruments and documents
referred  to  herein  or  contemplated  hereby  in  making  such  investment  or
participation  and agree that its  becoming  a  Participant  in the Loans  shall
constitute an acceptance of such offer and shall make the Participant a creditor
of the Borrowers. Any bank or other financing institution investing in the Loans
so as to become one of the Lenders shall be required to have a Revolving  Credit
Commitment of at least $5,000,000.

           8.3 Any  deposits  or other sums which at any time may be credited to
any of the  Borrowers  by or due to it from any  Participant  may at any time be
applied  to or  set  off  by  such  Participant  against  the  then  outstanding
indebtedness of the Borrowers hereunder.

           SECTION 9.  CONCERNING THE AGENT AND THE BANKS.

           9.1  Appointment  and  Authorization.  Each  of  the  Lenders  hereby
appoints  BKB,  acting  through  its head  office,  to serve as Agent under this
Agreement and under other  documents,  instruments  and agreements  executed and
delivered in connection with the transactions contemplated by this Agreement and
irrevocably  authorizes  the Agent to take such action as agent on such Lender's
behalf under this Agreement and such other documents, instruments and agreements
and to exercise such powers and to perform such duties under this  Agreement and
such other  documents,  instruments and agreements as are delegated to the Agent
by the terms hereof or thereof,  together with all such powers as are reasonably
incidental thereto.

           9.2 Agent and  Affiliates.  BKB shall have the same rights and powers
under this Agreement and  documents,  instruments  and  agreements  executed and
delivered in connection with the transactions  contemplated by this Agreement as
each other Lender and may exercise or refrain from exercising the same as though
it were not the Agent, and BKB and its Affiliates may accept deposits from, lend
money to, and generally engage in any kind of business with the Borrowers or any
Affiliate of the Borrowers as if it were not the Agent  hereunder and under such
other documents,  instruments or agreements. Except as otherwise provided by the
terms of this


                                       44

<PAGE>



Agreement,  nothing  herein shall  prohibit  any of the Lenders  from  accepting
deposits  from,  lending money to or generally  engaging in any kind of business
with the Borrowers or any Affiliate of the Borrowers.

           9.3 Future Advances.

           (a) In order to more  conveniently  administer the Loans, each Lender
does hereby authorize the Agent and BKB to make all Loans and advances,  subject
to the terms and conditions of this Agreement and not to exceed in the aggregate
the sum of all of the Lenders' Revolving Credit  Commitments,  to the Borrowers,
which are  requested by the Borrowers  during any Business  Day.  Without in any
manner  altering  the  extent  to  which  the  Lenders  have any  obligation  or
commitment  to the  Borrowers  to make  Revolving  Loans  hereunder,  including,
without  limitation,  pursuant to Sections 2.1 and 4.2 hereof,  each Lender does
hereby  further  irrevocably  agree,  subject  to the terms of  Section  9.3(b),
whether or not this  Agreement  has been  terminated,  an Event of  Default  has
occurred,  the Agent has  accelerated the Obligations or the Agent is proceeding
to liquidate the  Collateral,  to transfer to the Agent by 2:00 p.m. on the last
Business Day of each  calendar week  sufficient  immediately  available  federal
funds to reimburse BKB for its respective Commitment Percentage of all Loans and
other advances (not to exceed each Lender's  Revolving  Credit  Commitment) made
through  the  close of  business  on the last  Business  Day of the  immediately
preceding calendar week after taking into account payments received by the Agent
and applied to the Loan Account under Section 9.4 hereof.

           (b)  Notwithstanding the terms of Section 9.3(a), at such time as (i)
the Lenders have exercised  their option pursuant to Section 7.1 to cause all of
the  Obligations  to be  immediately  due  and  payable  and  there  is  then no
irrevocable  prior  commitment to fund any  additional  Loans or other  advances
hereunder,  or (ii) there has occurred and is  continuing  the  occurrence of an
Event of Default with respect to any of the Borrowers  under clause (i) or (vii)
of Section 7.1, each of the Lenders shall be obligated to fund additional  Loans
or other  advances  hereunder  in  accordance  with the terms of Section  9.3(a)
solely upon the written  consent or approval of those Lenders  whose  Commitment
Percentages  equal in the  aggregate 60% or more of the  Commitment  Percentages
held by all the  Lenders.  In no event shall a Lender be required to advance any
amount in excess of its Commitment Percentage of the Maximum Amount.

           (c) Funds provided by the Agent as payment upon a sight or time draft
presented to the Agent under a Letter of Credit issued  pursuant to the terms of
Section  2.4  hereof,  and any  payments  made by the  Agent  on  behalf  of the
Borrowers,  including, without limitation,  pursuant to the terms of Section 5.3
hereof,  shall constitute Loans or other advances initially made by the Agent at
such time as such funds are actually provided, or such payments are made, by the
Agent.  All Loans and other  advances  made by the Agent on behalf of any Lender
shall be, for purposes of interest  income and other charges,  considered  loans
from such Lender to the Borrowers and reflected in the Loan Account at such time
as the Agent  receives  from such Lender  funds as provided in this Section 9.3,
and prior to such time such Loans and advances shall be considered, for purposes
of interest income and other charges, loans from BKB and so reflected


                                       45

<PAGE>



in the Loan Account.  For purposes of accruing interest,  Loans from each Lender
shall be  considered to be Loans from such Lender until such time as such Lender
receives  from the Agent  funds  repaying  such Loans as  reflected  in the Loan
Account. In addition, any collection of Collateral,  including,  but not limited
to, any  collections of Accounts shall be applied to reduce any debit balance in
the Loan  Account so that the debit  balance  of the Loan  Account  equals  each
Lender's  respective  Commitment  Percentages.  The  Agent  may at any time upon
notice to any Lender (i)  refuse to make  Loans and  advances  on behalf of such
Lender unless such Lender shall have provided to the Agent immediately available
federal  funds  sufficient  to cause the Loan  Account to equal and reflect such
Lender's respective Commitment Percentage; (ii) require such Lender to fund such
Loans and  advances  before  making  such Loans and  advances  to the  Borrowers
requesting the same; or (iii) require that such Lender  immediately  transfer to
the Agent prior to the time such funds  would  otherwise  be required  hereunder
immediately  available  federal  funds  sufficient  to cause the Loan Account to
equal each Lender's  respective  Commitment  Percentage (it being  acknowledged,
however,  that the Agent will attempt to require any Lender to fund its share of
any Loan or advance prior to the time such funding  would  otherwise be required
hereunder to the extent such share exceeds $100,000, provided that the foregoing
shall in no way diminish the Agent's  rights  under  clauses (i) through  (iii),
inclusive,  of  this  sentence,  which  rights  it  may  exercise  in  its  sole
discretion).  Notwithstanding  the provisions  hereof,  the  obligations to make
Loans and advances  under the terms of this  Agreement  shall be the several and
not joint  obligation  of each  Lender,  and any  advances  made by the Agent on
behalf  of a Lender  are  strictly  for the  administrative  convenience  of the
parties  and shall in no way  diminish  such  Lender's  liability  to the Agent,
subject  to the terms of Section  9.3(b),  to repay the Agent for such Loans and
advances.

           9.4 Payments.  All payments and  prepayments of principal of Loans or
other  advances  received  by the Agent  shall be paid  promptly  to each of the
Lenders pro rata in accordance with their respective Commitment Percentages. All
such payments  from the  Borrowers or as proceeds of Collateral  received by the
Agent  shall be held in trust  for the  benefit  of the  Lenders.  As each  such
payment is received by the Agent, the Agent shall promptly charge or credit each
of the Lenders to the extent  necessary to ensure that as between them,  each of
the Lenders holds its respective  Commitment  Percentage of outstanding Loans or
other  advances,  based on the then unpaid  aggregate  principal  amounts of the
Loans or other advances outstanding.

           9.5 Interest,  Fees and Other Payments.  (i) All payments of interest
received by the Agent in respect of Loans or other advances, except as otherwise
provided  by the  terms of this  Agreement,  and all  other  fees  and  premiums
received by the Agent  hereunder or in respect of Loans or other  advances shall
be shared by the Lenders pro rata in accordance with their respective Commitment
Percentages. (ii) All payments received by the Agent pursuant to Section 10.7 of
this  Agreement  shall be  applied by the Agent to  reimburse  each  Lender,  on
account of the tax, charge or expense in respect of which such payment is made.

           9.6 Action by Agent.



                                       46

<PAGE>



                     (i) The  obligations of the Agent  hereunder are only those
           expressly set forth herein.  The Agent shall have no duty to exercise
           any right,  power or remedy  hereunder  or under any other  document,
           instrument or agreement  executed and delivered in connection with or
           as contemplated  by this Agreement or to take any affirmative  action
           hereunder or thereunder.

                     (ii)  The  Agent  shall  keep the Loan  Account  and  other
           records of the Loans,  other advances and payments  hereunder,  shall
           give and  receive  notices  and other  communications  to be given or
           received  by the Agent  hereunder  on behalf of the Banks,  and shall
           provide  to the  Lenders  notices  it  receives  from  the  Borrowers
           pursuant to Sections 2.6, 5.15, 5.16 and 5.17 hereof.

                     (iii) Upon the occurrence and during the continuation of an
           Event of  Default,  the  Agent  and those  Lenders  whose  Commitment
           Percentages  equal  in the  aggregate  60% or more of the  Commitment
           Percentages  held by all the Lenders  may  exercise  their  option on
           behalf of the  Lenders  pursuant to Section 7.1 hereof to declare all
           Obligations  immediately due and payable,  and the Agent may exercise
           its option to take such action as may appear  necessary  or desirable
           to collect the Obligations and enforce the rights and remedies of the
           Agent or the Lenders with respect to the Collateral.

                     (iv)  Whether  or  not  an  Event  of  Default  shall  have
           occurred,  the Agent may from time to time exercise the rights of the
           Agent and Lenders hereunder or under the other documents,  instrument
           or  agreements  executed  or  delivered  in  connection  with  or  as
           contemplated  by this Agreement as it may deem necessary or desirable
           to protect  the  Collateral  and the  interests  of the Agent and the
           Lenders therein.

           9.7 Consultation with Experts.  The Agent shall be entitled to retain
and consult with legal counsel, independent public accountants and other experts
selected  by it and shall not be liable to the  Lenders  for any  action  taken,
omitted  to be taken or  suffered  in good  faith by it in  accordance  with the
advice of such counsel,  accountants or experts. The Agent may employ agents and
attorneys-in-fact  and shall not be liable to the  Lenders  for the  default  or
misconduct of any such agents or attorneys.

           9.8  Liability  of Agent.  The Agent shall  exercise the same care to
protect the interests of each Lender as it does to protect its own interests, so
that so  long as the  Agent  exercises  such  care it  shall  not be  under  any
liability  to any Lender,  except for the Agent's  gross  negligence  or willful
misconduct with respect to anything it may do or refrain from doing.  Subject to
the immediately proceeding sentence, neither the Agent nor any of its directors,
officers,  agents or employees shall be liable for any action taken or not taken
by it in  connection  herewith in its  capacity as Agent.  Without  limiting the
generality  of the  foregoing,  neither  the  Agent  nor  any of its  directors,
officers,  agents  or  employees  shall be  responsible  for or have any duty to
ascertain,  inquire into or verify: (i) any statement,  warranty  representation
made in  connection  with this  Agreement or any other  document,  instrument or
agreement executed and delivered in connection


                                       47

<PAGE>



with the  transactions  contemplated by this Agreement;  (ii) the performance or
observance of any of the covenants or  agreements  of the  Borrowers;  (iii) the
satisfaction  of any  condition  specified  in Sections  4.1, 4.2 or 4.3 hereof,
except  receipt  of  items  required  to be  delivered  to the  Agent;  (iv) the
validity,  effectiveness,  enforceability or genuineness of this Agreement,  the
Credit  Notes or any  other  document,  instrument  or  agreement  executed  and
delivered in connection with or as  contemplated  by this Agreement;  or (v) the
existence,  value,  collectibility  or  adequacy of the  Collateral  or any part
thereof or the validity,  effectiveness,  perfection or relative priority of the
liens and security  interests of the Lenders  (through the Agent)  therein.  The
Agent  shall not incur any  liability  by acting in  reliance  upon any  notice,
consent,  certificate,  statement  or other  writing  (which may be a bank wire,
telex or similar  writing)  believed  by it to be genuine or to be signed by the
proper party or parties.

           9.9  Indemnification.  Each Lender  agrees to indemnify the Agent (to
the extent the Agent is not reimbursed by the Borrowers),  ratably in accordance
with its Commitment  Percentage,  from and against any cost,  expense (including
reasonable  attorneys' fees and disbursements),  claim, demand,  action, loss or
liability  which the Agent may suffer or incur in connection with this Agreement
or any document,  instrument  or agreement  executed and delivered in connection
with or as contemplated by this Agreement, or any action taken or omitted by the
Agent hereunder or thereunder,  or the Agent's  relationship  with the Borrowers
hereunder,  including,  without limitation,  the costs and expenses of defending
itself  against  any claim or  liability  in  connection  with the  exercise  or
performance  of any  of its  powers  and  duties  hereunder  and  of  taking  or
refraining from taking any action hereunder,  except for any such cost, expense,
claim,  demand,  action,  loss or  liability  arising out of the  Agent's  gross
negligence  or willful  misconduct.  No payment by any Lender under this Section
shall in any way relieve the Borrowers of their Obligations under this Agreement
with  respect to the  amounts so paid by any Lender,  and the  Lenders  shall be
subrogated to the rights of the Agent, if any, in respect thereto.

           9.10 Independent Credit Decision.  Each of the Lenders represents and
warrants to the Agent that it has,  independently  and without reliance upon the
Agent or any other Lender and based on the financial  statements  referred to in
Section  3.7  and  such  other  documents  and  information  as  it  has  deemed
appropriate, made its own independent credit analysis and decision to enter into
this Agreement. Each of the Lenders acknowledges that it has not relied upon any
representation  by the Agent and that the Agent shall not be responsible for any
statements in or omissions  from any  documents or  information  concerning  the
Borrowers,  this Agreement, the Credit Notes or any other document or instrument
executed and delivered in connection  with or as  contemplated by this Agreement
or the Original Loan Agreement.  Each of the Lenders  acknowledges that it will,
independently  and without reliance upon the Agent or any other Lender and based
on such  documents and  information  as it shall deem  appropriate  at the time,
continue to make its own credit  decision in taking or not taking  action  under
this Agreement.

           9.11  Consents  of All  Lenders.  Under any  circumstances  where the
consent,  waiver,  approval or similar  decision  of all of the Lenders  must be
requested by the Borrowers under the terms of this Agreement,  in the event that
BKB, acting on its own account and not as Agent, has


                                       48

<PAGE>



given any such consent, waiver, approval or otherwise, each of the other Lenders
hereby  agrees with BKB, and the  Borrowers,  for the benefit of the  Borrowers,
that any such consent,  waiver,  approval or otherwise will not be  unreasonably
withheld or delayed by such Lender.

           9.12  Successor  Agent.  BKB, or any successor  Agent,  may resign as
Agent at any time by  giving  written  notice  thereof  to the  Lenders  and the
Borrowers,  or may be removed with or without  cause upon at least 30 days prior
written  notice by and from Lenders whose  Commitment  Percentages  equal in the
aggregate  at least  67% of the  Commitment  Percentages  of all of the  Lenders
(including  the Agent).  Upon any such  resignation,  the Lenders shall have the
right to appoint a successor  Agent,  and upon any such  removal,  such  removal
shall be of no force or effect  until a successor  Agent has been  appointed  by
Lenders  other than the Agent then being removed  whose  Commitment  Percentages
equal in the aggregate  greater than 50% of the Commitment  Percentages  held by
all Lenders other than the Agent then being removed,  and such  successor  Agent
has  accepted  such  appointment.  In the  event  of such a  resignation,  if no
successor  Agent shall have been so  appointed  by the  Lenders,  and shall have
accepted such  appointment,  within 30 days after the retiring Agent's giving of
notice of  resignation,  then the retiring  Agent may, on behalf of the Lenders,
appoint a  successor  Agent,  which  shall be a  commercial  bank (or  Affiliate
thereof) or savings and loan association  organized under the laws of the United
States of  America or any State  thereof  or under the laws of  another  country
which is doing business in the United States of America or any State thereof and
having  a  combined   capital,   surplus  and  undivided  profits  of  at  least
$200,000,000.  Upon the acceptance of any  appointment  as Agent  hereunder 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  all  further  duties  and
obligations  under this  Agreement.  After any retiring  Agent's  resignation or
removal  hereunder as Agent, the provisions of this Section 9 shall inure to its
benefit as to any actions  taken or omitted to be taken by it while it was Agent
under this Agreement.

           9.13 Agent's Minimum  Revolving Credit  Commitment.  BKB agrees with,
and solely for the benefit of, the Lenders  that for so long as it  continues as
Agent hereunder it shall maintain a Revolving Credit Commitment  hereunder of at
least $10,000,000.

           SECTION 10.  MISCELLANEOUS.

           10.1  Written  Notices.  Any  notices,  expressly  required  by  this
Agreement  to be in writing,  to any party  hereto  shall be deemed to have been
given  when  delivered  by hand,  when  sent by  confirmed  telecopier,  one (1)
Business Day after it is delivered to any  overnight  delivery  service  freight
pre-paid or five (5) Business  Days after  deposit in the United  States  mails,
postage prepaid,  certified mail, return receipt requested and addressed to such
party at its address  given at the  beginning of this  Agreement or at any other
address specified in writing.  Written notices to the Borrowers shall be sent to
the attention of David Shamilzadeh,  Director and Chief Financial Officer, or to
such other officer as may be designated by the  Borrowers,  with a courtesy copy
to Henry I. Rothman,  Esquire,  Parker Chapin Flattau & Klimpl, LLP, 1211 Avenue
of the


                                       49

<PAGE>



Americas,  New York, New York 10036. Written notices to the Agent or the Lenders
shall be sent to them as follows:

           (i)       if to BKB or the Agent, to it at
                     100 Federal Street
                     Boston, Massachusetts 02110
                     Attn:  Brent E. Shay, Director

           (ii)      if to IBJS, to it at
                     One State Street, 9th Floor
                     New York, New York 10004
                     Attn: Merily McLaughlin, Vice President

           (iii)     if to SBC, to it at
                     500 Glenpointe Center
                     W. Teaneck, New Jersey 07666
                     Attn:  Mr. Philip Carfora

           (iv)      if to LBC, to it at 477 Madison Avenue, 20th Floor,
                     New York, New York  10022
                     Attn:  Lawrence P. Garni

           (v)       if to BLT to it at 562  Fifth  Avenue  New  York,  New York
                     10036
                     Attn: Paul Tine, Vice President

           (vi)      if to FNBMD, to it at
                     25 South Charles Street
                     Baltimore, MD  21201
                     Attn:  John T. Penny

           (vii)     if to DSB, to it at
                     1180 Avenue of the Americas
                     Fifth Floor
                     New York, NY  10036
                     Attn: James A. Fisher

           (viii)    if to KCC,  to it at  Structural  Finance  Group  One Canal
                     Plaza, 6th Floor Portland, ME 04101
                     Attn: Harold H. Henderson, Vice-President


                                       50

<PAGE>



or such other  officer as may be  designated  by the Agent or the  Lenders.  Any
notice, unless otherwise specified, may be given orally or in writing.

           10.2 Term of Agreement.  This  Agreement  shall continue in force and
effect so long as any commitment,  any portion of the Loans or any Obligation of
the Borrowers for any interest, fee, charge or expense shall be outstanding.

           10.3 No  Waivers.  No  failure or delay by the Agent or any Lender in
exercising  any right,  power or privilege  hereunder  shall operate as a waiver
thereof;  nor shall any single or partial exercise thereof preclude any other or
further exercise thereof or the exercise of any other right, power or privilege.
The rights and remedies  herein provided are cumulative and not exclusive of any
rights or remedies otherwise provided by law.

           10.4 Further  Assurances.  The Borrowers shall do, make,  execute and
deliver  all  such  additional  and  further  acts,  things,   assurances,   and
instruments as the Agent or any Lender may reasonably require more completely to
vest in and assure to the Agent and the Lenders their rights hereunder and under
the Credit Notes,  in the Collateral and to carry into effect the provisions and
intent of this Agreement and the Credit Notes.

           10.5  Governing  Law.  This  Agreement  and the Credit Notes shall be
deemed to be contracts made under seal and shall be construed in accordance with
and governed by the laws of the Commonwealth of Massachusetts (without regard to
conflicts  of laws  rules).  Any legal  action or  proceeding  arising out of or
relating to this  Agreement or any Obligation may be instituted in the courts of
the  Commonwealth  of  Massachusetts  or of the United States of America for the
District of Massachusetts,  and the Borrowers hereby  irrevocably  submit to the
jurisdiction  of each such  court in any such  action or  proceeding;  provided,
however,  that the foregoing  shall not limit the Agent's or any Lender's rights
to bring any legal action or proceeding in any other appropriate jurisdiction in
which  event  the  laws  of  the  Commonwealth  of  Massachusetts   shall  apply
notwithstanding any rules regarding conflicts of laws to the contrary.

           10.6 Payments in Immediately  Available Funds. All payments  required
of the  Borrowers  hereunder  or under the Credit  Notes shall be made in lawful
money of the United  States of America  in  federal or other  funds  immediately
available to the recipient thereof at the prescribed place of payment.

           10.7      Expenses, Taxes and Indemnification.

           (a) The Borrowers  will pay all taxes (other than taxes on the income
of the Agent or any Lender),  charges and expenses of every kind or description,
including without limitation reasonable  attorneys' fees and expenses,  and fees
and expenses  related to commercial  finance  examinations  (consistent with the
Agent's  current  practices  from time to time of passing  such  expenses  on to
borrowers),  reasonably  incurred  or  expended  by the  Agent or any  Lender in
connection  with  or in  any  way  related  to  the  Agent's  or  such  Lender's
relationship with the


                                       51

<PAGE>



Borrowers, whether hereunder or otherwise,  including, without limitation, those
incurred or expended in connection with the  preparation,  execution,  delivery,
interpretation or amendment of this Agreement,  the Credit Notes and any related
agreement,  instrument or document,  the making of the Loans,  the  supervision,
protection  and  collection  of and  realization  upon any  Collateral,  and the
protection or enforcement of the Agent's and such Lender's rights hereunder. The
Borrowers  authorize the Agent to charge the Loan Account or any deposit account
which  any  of the  Borrowers  may  maintain  with  any  Lender  for  any of the
foregoing.

           (b)  The  Borrowers  shall  jointly  and  severally   absolutely  and
unconditionally  indemnify and hold the Agent and each Lender  harmless  against
any and all claims, demands, suits, actions, causes of action, damages,  losses,
settlement  payments,  obligations,  costs,  expenses and all other  liabilities
whatsoever  which  shall at any time or times be incurred  or  sustained  by the
Agent or such  Lender  or by any of  their  shareholders,  directors,  officers,
employees, subsidiaries,  affiliates or agents on account of, or in relation to,
or in any  way in  connection  with,  any of the  arrangements  or  transactions
contemplated by, associated with or ancillary to either this Agreement or any of
the other documents executed or delivered in connection herewith, whether or not
all or any of the transactions  contemplated by, associated with or ancillary to
this Agreement or any of such documents are ultimately consummated, except those
resulting  from the gross  negligence or willful  misconduct of the Agent or any
Lender.

           10.8 Amendments, Waivers, etc. Except as otherwise expressly provided
in this Agreement or any of the Loan Documents:

                     (a) each of this  Agreement  or the Loan  Documents  may be
           modified,  amended or supplemented in any respect  whatever only with
           the prior written consent or approval of Distributors  and the Agent,
           unless otherwise provided in this Section 10.8;

                     (b) the  waiver of the  performance  or  observance  by the
           Borrowers of any of their covenants,  agreements or obligations under
           any of this Agreement or the Loan Documents (other than those arising
           pursuant to Sections 5.5, 5.10,  5.25,  5.26,  5.27,  5.28 and 7.1(x)
           hereof) shall require the written consent of the Agent only;

                     (c) the  following  shall  require the  written  consent of
           those Lenders whose Commitment Percentages equal in the aggregate 60%
           or more of the Commitment Percentages held by all of the Lenders:

                                          (i)  waiver  of  the   performance  or
                               observance  by the  Borrowers  of  any  of  their
                               covenants,   agreements  or  obligations  arising
                               pursuant to Sections 5.5, 5.10, 5.25, 5.26, 5.27,
                               5.28 and 7.1(x) hereof;

                                          (ii) any  increase  in the  percentage
                               "75%"  set  forth in  Section  1.10  relating  to
                               California   Base   Accounts   up  to  the   then
                               applicable   percentage  applicable  to  the  Net
                               Outstanding Amount of Base Accounts


                                       52

<PAGE>



                               with   respect  to  Base   Accounts   other  than
                               California Base Accounts, and any increase in the
                               percentage 50% set forth in Section 1.11 relating
                               to  California  Base  Inventory  up to  the  then
                               applicable    percentage   applicable   to   Base
                               Inventory;

                     (d)  the  following   changes  shall  require  the  written
           consent, agreement or approval of all of the Lenders:

                                          (i)  any  increase  in the  percentage
                               "75%"  set  forth in  Section  1.10  relating  to
                               California  Base  Accounts  if and to the  extent
                               such percentage  would exceed the then applicable
                               percentage for the Net Outstanding Amount of Base
                               Accounts other than California Base Accounts, and
                               any increase in the percentage "50%" set forth in
                               Section   1.11   relating  to   California   Base
                               Inventory  if and to the extent  such  percentage
                               would exceed the then  applicable  percentage for
                               the Base Inventory;

                                          (ii)  any   other   increase   in  the
                               percentages  set forth in Sections  1.10 and 1.11
                               not specifically  addressed above in this Section
                               10.8;

                                          (iii) any  increase  in  the   Maximum
                               Amount, extension or postponement of the Maturity
                               Date  or  forgiveness  of any of the Obligations;

                                          (iv)any decrease in the interest rates
                               prescribed in this Agreement or the  Credit Notes
                               or in the fees prescribed herein;

                                          (v)  any  change  in  the   Commitment
                               Percentage of any of the Lenders (other than as a
                               result of any  assignment or  participation  of a
                               Lender's  interest  hereunder  permitted  by  the
                               terms  of  this  Agreement)  or  of  all  of  the
                               Revolving Credit Commitments in the aggregate;

                                          (vi) any release or subordination  of,
                               or grant of parity of lien regarding,  Collateral
                               with  a  fair  liquidation  value  of  more  than
                               $1,000,000 in the aggregate;  any increase in the
                               dollar  amount  set  forth in  Section  1.9;  any
                               subordination  of or  grant of  parity  regarding
                               payment  priority;  or the  release of any of the
                               Guaranties;

                                          (vii)  any  change  in  the  terms  of
                                Section  2.7,  other  than a  change  consisting
                                solely of the reduction of the maximum aggregate
                                amount  of  Overadvances  set  forth in  Section
                                2.7(ii)(a); and

                                          (viii)  any change in or waiver of the
                                terms of this Section  10.8 or of the Commitment
                                Percentage required for action by the Lenders in
                                Sections 7.1, 9.3(b) or 9.6(iii).


                                       53

<PAGE>



           The Agent  shall,  solely  for the  benefit of the  Lenders,  provide
promptly to each of the Lenders a copy of each such written  consent or approval
arising in accordance  with the terms of clauses (a), (b) or (c) of this Section
10.8.  Notwithstanding the foregoing, the terms of Section 9 (other than Section
9.13) hereof may be  modified,  amended or  supplemented  without the consent or
approval of any of the Borrowers  upon the prior written  consent or approval of
Lenders whose Commitment Percentages equal in the aggregate 67% or more, and the
terms of Section 9.13 hereof may be modified,  amended or  supplemented  without
the consent or approval of any of the Borrowers  upon the prior written  consent
or approval of BKB and of Lenders  (including BKB) whose Commitment  Percentages
equal in the aggregate 67% or more.

           10.9 Binding  Effect of Agreement.  This  Agreement  shall be binding
upon and inure to the  benefit of the  Borrowers,  the Agent and the Lenders and
their respective  successors and assigns.  The Agent and each of the Lenders may
sell,  assign or otherwise  transfer all or any portion of its right,  title and
interest in, and its Obligations under, this Agreement and the Loans made and to
be made  hereunder,  or grant  participations  in its right,  title and interest
herein and therein.  The  Borrowers  may not assign or transfer  their rights or
obligations hereunder.

           10.10  Computation of Interest and Fees.  Interest,  fees and charges
shall  be  computed  daily  on the  basis of a year of 360 days and paid for the
actual  number  of days  for  which  due.  If the due date  for any  payment  of
principal is extended by operation  of law,  interest  shall be payable for such
extended time. If any payment  required by this  Agreement  becomes due on a day
that is not a Business  Day,  such  payment  may be made on the next  succeeding
Business  Day, and such  extension  shall be included in  computing  interest in
connection with such payment.

           10.11  Entire  Agreement.  This  Agreement,  including  the  exhibits
hereto,  sets forth the entire agreement and understanding of the parties hereto
in respect of the subject  matter  contained  herein,  and  supersedes all prior
agreements, promises, covenants, arrangements, communications,  representations,
warranties,  whether oral or written, by any officer, employee or representative
of any party hereto.

           10.12 WAIVER OF JURY TRIAL. EACH OF THE BORROWERS HEREBY  IRREVOCABLY
WAIVES  TRIAL BY JURY IN ANY  JURISDICTION  AND IN ANY COURT WITH RESPECT TO, IN
CONNECTION  WITH,  OR ARISING OUT OF THIS  AGREEMENT,  THE  OBLIGATIONS,  OR ANY
INSTRUMENT OR DOCUMENT  DELIVERED  PURSUANT  HERETO OR THERETO,  OR ANY CLAIM OR
DISPUTE HOWSOEVER  ARISING,  BETWEEN ANY OF THE BORROWERS,  THE AGENT AND ANY OF
THE  LENDERS.  THIS WAIVER OF JURY TRIAL SHALL BE  EFFECTIVE  FOR EACH AND EVERY
DOCUMENT  EXECUTED BY ANY OF THE BORROWERS,  THE AGENT OR ANY OF THE LENDERS AND
DELIVERED TO THE AGENT, ANY LENDER OR ANY OF THE BORROWERS,  AS THE CASE MAY BE,
WHETHER OR NOT SUCH DOCUMENT  SHALL CONTAIN A WAIVER OF JURY TRIAL.  EACH OF THE
BORROWERS FURTHER  ACKNOWLEDGES  THAT ALL DOCUMENTS  DELIVERED BY THE AGENT, ANY
LENDER OR ANY OF THE  BORROWERS  ARE  SUBJECT TO THIS WAVIER OF JURY TRIAL AS TO
ANY  ACTION  THAT MAY BE  BROUGHT AS TO ANY OF SUCH  DOCUMENTS,  INSTRUMENTS  OR
LETTERS OR THE LIKE. EACH OF THE


                                       54

<PAGE>



BORROWERS  FURTHER  CONFIRMS THAT THE FOREGOING  WAIVERS ARE INFORMED AND FREELY
MADE.

           10.13  Captions.  The captions for the sections of this Agreement are
for ease of reference only and are not an integral part of this Agreement.

           10.14  Counterparts.  This  Agreement  may be signed in any number of
counterparts  with the same effect as if the signatures  hereto and thereto were
upon the same instrument.

           10.15  Severability.  The provisions of this Agreement are severable,
and if any of  these  provisions  shall  be  held  by  any  court  of  competent
jurisdiction to be  unenforceable,  such holdings shall not affect or impair any
other provision hereof.

                        [Signatures appear on next page.]





                                       55

<PAGE>



WITNESS the execution hereof under seal on the day and year first above written.

                                       ALLOU HEALTH & BEAUTY CARE, INC.

                                       By: /s/ 
                                          --------------------------------------
                                          Title:

                                       ALLOU DISTRIBUTORS, INC.

                                       By: /s/ 
                                          --------------------------------------
                                          Title:

                                       BANKBOSTON, N.A.

                                       By: /s/ 
                                          --------------------------------------
                                          Title:

                                       IBJ SCHRODER BANK & TRUST COMPANY

                                       By: /s/ 
                                          --------------------------------------
                                          Title:

                                       SANWA BUSINESS CREDIT CORPORATION

                                       By: /s/ 
                                          --------------------------------------
                                          Title:

                                       LASALLE BUSINESS CREDIT, INC.

                                       By: /s/ 
                                          --------------------------------------

                                       BANK LEUMI TRUST COMPANY OF NEW YORK

                                       By: /s/ 
                                          --------------------------------------
                                          Title:

                                       THE DIME SAVINGS BANK OF NEW YORK, FSB


                                       By: /s/ 
                                          --------------------------------------
                                          Title:


                       (Signatures continued on next page)


                                       56

<PAGE>




                                       THE FIRST NATIONAL BANK OF MARYLAND

                                       By: /s/ 
                                          --------------------------------------
                                          Title:

                                       KEY CORPORATE CAPITAL, INC.


                                       By: /s/ 
                                          --------------------------------------
                                          Title:






                                       57

<PAGE>



                                    EXHIBIT A
                                    ---------


                Third Restated and Amended Revolving Credit Note
                ------------------------------------------------


$[Maximum Amount x Lender's                               Boston,  Massachusetts
    Commitment Percentage]                                August __, 1997


           FOR  VALUE   RECEIVED,   the   undersigned   hereby   absolutely  and
unconditionally,  jointly  and  severally,  promise  to pay to [a  Lender]  (the
"Lender"),  or order,  on the Maturity  Date,  the principal  amount of [Maximum
Amount x Lender's  Commitment  Percentage]  Dollars  ($________________)  or, if
less, the aggregate  unpaid  principal  amount of all Revolving  Loans and other
advances  made by the Lender to the  Borrowers  pursuant  to the  Agreement  (as
hereinafter  defined) and noted on the records of the Agent in  accordance  with
the terms of the Agreement, together with interest (computed on the basis of the
actual  number of days  elapsed  over a 360-day  year) on the  unpaid  principal
amount  hereof  until  paid in full at the  times  and  rates  set  forth in the
Agreement referred to below.

           All payments  under this Note shall be made at the head office of the
Agent at 100 Federal Street, Boston, Massachusetts 02110 (or at such other place
as the Agent may designate  from time to time in writing) in lawful money of the
United States of America in federal or other  immediately  available  funds. The
Borrowers  may prepay  this Note in whole or in part at any time  subject to the
terms and  conditions  set  forth in the  Agreement.  Amounts  so paid and other
amounts may be borrowed and  reborrowed by the Borrowers  hereunder from time to
time as provided in the Agreement.

           This Note is issued  pursuant to, is entitled to the benefits of, and
is subject to the provisions of a certain Third  Restated and Amended  Revolving
Credit and Security  Agreement of even date herewith among the undersigned,  the
Lender, [additional Lenders] and BankBoston,  N.A. as Agent (herein, as the same
may from time to time be amended or extended,  referred to as the  "Agreement"),
but neither this  reference to the  Agreement  nor any  provision  thereof shall
affect or impair the absolute and unconditional  joint and several obligation of
each of the undersigned makers of this Note to pay the principal of and interest
on this Note as herein  provided.  All capitalized  terms used herein shall have
the meanings set forth herein or in the Agreement.

           Upon an Event of Default,  the aggregate  unpaid balance of principal
plus accrued interest may become or may be declared to be due and payable in the
manner and with the effect provided in the Agreement.

           Except as may  otherwise  be provided in the  Agreement,  each of the
undersigned makers of this Note, hereby waives  presentment,  demand,  notice of
dishonor,  protest  and all other  demands and  notices in  connection  with the
delivery, acceptance, performance and enforcement of this Note.



<PAGE>




WITNESS the execution of this Note under seal on the date written above.

                                       ALLOU DISTRIBUTORS, INC.


                                       By:
                                          --------------------------------------
                                          Title:


                                       ALLOU HEALTH & BEAUTY CARE, INC.


                                       By:
                                          --------------------------------------
                                          Title:




<PAGE>



                                    EXHIBIT B
                                    ---------


                               DISCLOSURE SCHEDULE

           This Disclosure Schedule amends and supplements the information which
has been previously disclosed to the Lenders under the Loan Agreement.

           1.         Schedule 3.5(b) of the Loan Agreement is hereby amended to
read in its entirety as follows:

           Real Property Owned or Leased By Borrower:
           ------------------------------------------

           Ownership of Real Estate:
           -------------------------

                    The Borrowers do not own any real property.

           Leasehold Interest in Real Property:
           ------------------------------------

                     A.   Distributors   is  obligated  under  a  real  property
           operating lease  agreement  dated March 4, 1980 between  Distributors
           and Pueblo  Supermarkets,  Inc.,  which  lease has been  assigned  by
           Pueblo  Supermarkets  Inc.  to  Brentwood  Distribution  Co.  and  by
           amendment  dated  December 8, 1993 is  expiring in 2005,  relating to
           certain real property constituting a warehouse and offices located in
           Brentwood New York. The minimum annual rentals,  including additional
           payments for real estate taxes and certain expenses, are as follows:

                               1997                           $577,500
                               1998                           $577,500
                               1999                           $577,500
                               2000                           $577,500
                               2001                           $630,000
                               2002                           $630,000
                               2003                           $630,000
                               2004                           $630,000
                               2005                           $630,000




<PAGE>



                     B. Lease dated as of October,  1996 between TMC Properties,
           Inc., as lessor, and Allou Personal Care Corporation,  as lessee. The
           minimum monthly rental is $25,000.

           2.         Schedule 3.11 of the Loan  Agreement is hereby  amended to
read in its entirety as follows:

                                  Schedule 3.11
                                  -------------

                      Pending or Threatened Litigation or Proceedings:
                      ------------------------------------------------

                                      None

           3.         Schedule 3.17 of the Loan  Agreement is hereby  amended to
read in its entirety as follows:

                      Employment Contracts:

                                 1. Employment Contract, dated as of January 24,
                      1989,  between Allou Health & Beauty Care, Inc. and Victor
                      Jacobs.

                                 2. Employment Contract, dated as of January 24,
                      1989,  between Allou Health & Beauty Care, Inc. and Herman
                      Jacobs.

                                 3. Employment Contract, dated as of January 24,
                      1989,  between  Allou Health & Beauty Care,  Inc. and Jack
                      Jacobs.

                                 4.  Employment  Contract,  dated as of April 1,
                      1994,  between Allou Health & Beauty Care, Inc. and Robert
                      Crivell.

                                 5.  Employment  Contract,  dated as of April 1,
                      1994 between  Allou Health & Beauty Care,  Inc. and Steven
                      Friedman.

                                 6. Oral "at will" employment  agreements in the
                      ordinary course of business.

           4. Schedule  4.1.1(r) of the Loan Agreement is hereby amended to read
in its entirety as follows:

                                Schedule 4.1.1(r)
                                -----------------

           Financial Institutions Currently Lending to Borrowers:
           ------------------------------------------------------

                     a.        BankBoston, N.A.
                     b.        IBJ Schroder Bank & Trust Company
                     c.        Sanwa Business Credit Corporation
                     d.        LaSalle Business Credit, Inc.


<PAGE>



                     e.        Bank Leumi Trust Company of New York
                     f.        The First National Bank of Maryland
                     g.        The Dime Savings Bank of New York, FSB
                     h.        Key Corporate Capital, Inc.


           6.         Schedule 6.3 of the Loan  Agreement  is hereby  amended to
read in its entirety as follows:

                                  Schedule 6.3
                                  ------------

           Additional Collateral Location:
           -------------------------------

                      1.         Sole Collateral Location of Collateral owned by
           Russ  Kalvin   Personal  Care  Corp.   and  Stanford   Personal  Care
           Manufacturing, Inc.:

                               25644 Springbook Avenue, No. 6
                               Saugus, California  91350

                      2.         Sole Collateral Location of Collateral owned by
all of the other Borrowers:

                               50 Emjay Boulevard
                               Brentwood, NY 11717




<PAGE>



                                    EXHIBIT C
                                    ---------

                              EXISTING INDEBTEDNESS

Indebtedness or Other Liabilities, Debts or Obligations:
--------------------------------------------------------

           Distributors  is  obligated  under a real  property  operating  lease
agreement  expiring in 2005. The minimum annual  rentals,  including  additional
payments for real estate taxes and certain expenses, are as follows:

                     1996                  $577,500
                     1997                  $577,500
                     1998                  $577,500
                     1999                  $577,500
                     2000                  $577,500
                     2001                  $630,000
                     2002                  $630,000
                     2003                  $630,000
                     2004                  $630,000
                     2005                  $630,000

           In  connection  with the  acquisition  of M. Sobol,  Inc. on April 1,
1993, the Parent owes Simon Mandell $750,000 as of April 1, 1994, with a balance
outstanding of $270,000 as of October, 1997.

                     1. Schedule  3.5(b) of the Subsidiary  Tie-In  Agreement is
           hereby amended to read in its entirety as follows:

                                 Schedule 3.5(b)
                                 ---------------

Real Property Owned or Leased by Borrowers:
-------------------------------------------

Ownership of Real Estate:
-------------------------

           The Borrowers do not own any real property.

Leasehold Interest in Real Property:
------------------------------------
                                      None



<PAGE>



                                    EXHIBIT D
                                    ---------

                 THIRD RESTATED AND AMENDED CLOSING CERTIFICATE


           This Closing  Certificate is delivered pursuant to Section 4.3 of the
Third Restated and Amended Revolving Credit and Security  Agreement of even date
herewith  (the   "Agreement")   among  the  undersigned  and  certain  of  their
Affiliates,  (collectively, the "Borrowers"), IBJ Schroder Bank & Trust Company,
Sanwa Business Credit, LaSalle Business Credit, Inc., The First National Bank of
Maryland,  The Dime Savings Bank of New York, FSB, Key Corporate Capital,  Inc.,
Bank Leumi Trust Company of New York, BankBoston, N.A. (f/k/a The First National
Bank of Boston) (collectively,  the "Lenders") and BankBoston, N.A. as Agent for
the  Lenders.  All  capitalized  terms shall have the  meanings set forth in the
Agreement.

           The undersigned does hereby certify as follows:

           1. I am the officer in charge of financial affairs of the undersigned
on behalf of whom I have executed this Certificate below.

           2. I have  reviewed  the  Agreement,  and to the best of my knowledge
each  representation  contained  in the  Agreement  is true and  correct  in all
material respects as of the date hereof.

           3.  To the  best  of my  knowledge,  the  Borrowers  have  performed,
satisfied,  or complied in all material respects with all covenants,  warranties
and representations  and conditions to be performed,  satisfied or complied with
by it under the  Agreement on or before the date  hereof,  and to the best of my
knowledge no event has occurred and is continuing and no condition  exists which
constitutes, or with the passage of time or the giving of notice, or both, would
constitute an Event of Default.

           4. I have  reviewed the books and records of the  Borrowers and their
business and the financial statements and projections of the Borrowers' business
furnished to the Agent;  and I have  consulted with counsel for the Borrowers as
to the meaning of terms used in this Certificate.  Based upon the foregoing, the
Borrowers have and, after giving effect to any borrowings under the Agreement on
the date hereof,  will have tangible and intangible assets having a present fair
saleable value in excess of the amount required to pay the probable liability on
their  then-existing   debts  (whether  matured  or  unmatured,   liquidated  or
unliquidated,  fixed or contingent);  the Borrowers have and will have access to
adequate  capital for the conduct of their  business and the  discharge of their
debts  incurred  in  connection  therewith  as such  debts  mature;  none of the
Borrowers is Insolvent;  and,  immediately after giving effect to the borrowings
under the Agreement on the date hereof, none of the Borrowers will be Insolvent.

           5. There has not been any material  adverse chance in the business of
the  Borrowers  since the date of the Initial  Financial  Statement,  including,
without  limitation,  any material  adverse change from the business plan of the
Borrowers as previously presented to the Agent.


<PAGE>



           WITNESS  the  execution  of this  Certificate  as of this __th day of
____________, 1997.


                                       [EACH BORROWER]


                                       By:
                                          --------------------------------------
                                          Title:




<PAGE>



                                    EXHIBIT E
                                    ---------

                     CERTIFICATE OF CHIEF FINANCIAL OFFICERS


           (Pursuant  to  Section  5.1(vi)  of the Third  Restated  and  Amended
Revolving Credit and Security Agreement dated August ___, 1997.)

           [Certificate  for each  Borrower](the  "Borrower")  HEREBY  CERTIFIES
THAT:

           This Report is  furnished  pursuant  to Section  5.1(vi) of the Third
Restated and Amended  Revolving Credit and Security  Agreement dated August ___,
1997 among the  Borrowers,  IBJ Schroder Bank & Trust  Company,  Sanwa  Business
Credit,  Bank  Leumi  Trust  Company  of New York,  The First  National  Bank of
Maryland,  The Dime Savings Bank, [Additional Lender],  BankBoston,  N.A. (f/k/a
The First National Bank of Boston) (collectively, the "Lenders") and BankBoston,
N.A.  as Agent for the  Lenders  (the  "Agreement").  Unless  otherwise  defined
herein,  the terms used in this Report and  Schedule 1 hereto have the  meanings
described in the Agreement.

           As required  by Section  5.1(i) or (ii) of the  Agreement,  financial
statements of the Borrowers and any  Subsidiaries for the (year) (quarter) ended
_________,  19__ (the "Financial  Statements")  prepared in accordance with GAAP
(subject,  in the case of quarterly  statements,  to year-end audit adjustments)
accompany this Report. The Financial  Statements present fairly the consolidated
financial  position of the Borrowers and any Subsidiaries as at the date thereof
and the consolidated results of operations of the Borrowers and any Subsidiaries
for the period covered thereby.

           Schedule 1 attached hereto sets forth financial data and computations
evidencing  the  Borrowers'  compliance  with the covenants of the Agreement set
forth  in  Sections  5.25  through  5.28,  inclusive,  all  of  which  data  and
computations,  to the best of the  knowledge  and belief of the chief  financial
officers ("Chief  Financial  Officers")  executing and delivering this Report on
behalf of the Borrowers, are true, complete and correct.

           The  activities  of the  Borrowers  and any  Subsidiaries  during the
period  covered by the  Financial  Statements  have been  reviewed  by the Chief
Financial Officers and by employees or agents under their immediate supervision.
Based on such review,  to the best  knowledge and belief of the Chief  Financial
Officers,  during the period covered by the Financial Statements,  and as of the
date of this  Report,  (a) the  Borrowers  have,  or have caused to have,  kept,
observed,  performed  and  fulfilled  in all  material  respects  each and every
covenant and  condition  of the  Agreement  (except to the extent  waived by the
Agent or the  Lenders,  as the case may be,  and noted on  Schedule  1  attached
hereto)  and the Credit  Notes,  and (b) no Event of Default  and no event which
with notice or lapse of time,  or both,  would  become an Event of Default,  has
occurred or is occurring.



<PAGE>


           Witness my hand this ______ day of _____________199__.


                                       [Each Borrower]


                                       By:
                                          --------------------------------------
                                          Title: